ACC 350 Week 5 MidTerm Exam Chapters 1 Through 4 – Strayer

ACC 350 Week 5 Mid-Term Exam Quiz – Strayer (All Possible Questions With Answers)

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Chapter 1

The Accountant’s Role in the Organization

1) Management accounting information focuses on external reporting.

2) Cost management is narrowly focused on a continuous reduction of costs.

3) Managers always require the information in an accounting system to be presented in the same format.

4) Modern cost accounting plays a significant role in management decision making.

5) The balance sheet, income statement, and statement of cash flows are used for financial accounting, but not for management accounting.

6) Financial accounting is broader in scope than management accounting.

7) Cost accounting measures and reports short-term, long-term, financial, and nonfinancial information.

8) Cost management provides information that helps increase value for customers.

9) Management accounting has to strictly follow the rules of generally accepted accounting principles for the purposes of measurement and reporting.

10) An ideal database should consist of data that could be used for a single purpose only.

11) An Enterprise Resource Planning (ERP) System is a single database that collects data and feeds into applications that support each of the company’s business activities, such as purchases, production, distribution, and sales.

12) Cost accounting provides information only for management accounting purposes.

13) Cost management involves long-term and short-term decisions that attempt to increase value for customers and lower costs of products or services.

14) Strategy does NOT specify how an organization matches its capabilities with the opportunities in the marketplace.

15) All strategies should be evaluated regarding the resources and capabilities of the company.
16) The best-designed strategies are valuable whether or not they are effectively implemented.

17) The key to a company’s success is creating value for customers while differentiating itself from its competitors.

18) The key to a company’s success is always to be the low cost producer in a particular industry.

19) Companies generally follow one of two basic strategies: 1) providing a quality product or service at low prices, or 2) offering a unique product or service often priced higher than competing products.

20) Management accountants should have little or no role in deciding on a company’s strategy.

21) Companies can decide on an appropriate strategy based strictly on internally available information.

22) Strategic cost management describes cost management that specifically focuses on strategic issues.

23) Identifying a company’s most important customers does not help formulate strategy.

24) The best-designed strategies and the best-developed capabilities are useless unless they are effectively executed.

25) The supply chain refers to the sequence of business functions in which customer usefulness is added to products or services.

26) An effective way to cut costs is to eliminate activities that do not improve the product attributes that customers value.

27) For optimal planning success it is best if each business function within the value chain is performed one at a time in sequence.

28) For best results, cost management emphasizes independently coordinating supply chain activities within your company and not interfering with other companies.

29) Technological innovation has led to shorter product-life cycles and a need to bring new products to market more rapidly.

30) Key success factors include cost, quality, timeliness, and innovation.

31) Customers are demanding increased levels of performance in all aspects of the value chain and the supply chain.

32) The value chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers.

33) The supply chain always occurs within a single organization.

34) Distribution refers to promoting and selling products or services to customers or prospective customers.

35) The production component of the value chain refers to acquiring, coordinating, and assembling resources to produce a product or deliver a service.

36) Management accountants might provide information on decisions on whether to buy a product from outside or manufacture it in-house.

37) Key success factors are geared to improving customer satisfaction.

38) Value chain refers to its value to the employee.

39) Companies have to follow strict guidelines when designing a management accounting system.

40) Tracking what is happening in other companies is illegal.

41) Increased global competition is placing pressure on companies to reduce costs.

42) The increasing pace of technological innovation has resulted in longer product life cycles.

43) A bottleneck occurs when the work to be performed exceeds the available capacity.

44) The first step in the decision-making process is to obtain information.

45) One of the steps in planning is making predictions about the future.

46) It is difficult to control activities without a budget.

47) To take advantage of changing market opportunities, the annual budget should be strictly enforced.

48) A budget is a tool used to plan and express strategy.

49) The process of preparing a budget forces coordination and communication throughout the company.

50) Linking rewards to performance is a major deterrent to good management performance.

51) Employees pay little attention to how their performance is measured.

52) A budget may be used as a planning tool, but not as a control tool.

53) Financial accounting reports financial and nonfinancial information that helps managers implement company strategies.

54) Feedback and learning helps in the future decision-making process.

55) Control includes deciding what feedback to provide that will help with future decision making.

56) When a particular aspect of employee performance is measured, employees pay more attention to it.

57) A performance report compares actual performance to the amount budgeted.

58) Management accounting is playing an increasingly important role by helping managers develop and implement strategy.

59) It is generally easy to quantify expected benefits and costs when applying the cost-benefit approach.

60) The purpose of a budget is strictly technical. It does NOT influence behavior.

61) A cost concept used for external reporting purposes may not be appropriate for internal, routine reporting to managers.

62) Generally accepted accounting principles (GAAP) require that the same accounting methods be used for both internal and external reporting.

63) Line management is directly responsible for attaining the goals of the organization.

64) Staff management should NOT provide advice and assistance to line management.

65) The use of teams to achieve corporate objectives is increasing.

66) The controller is usually responsible for banking, short- and long-term financing, investments, and cash management.

67) The controller (also called the chief accounting officer) is the financial executive primarily responsible for both management accounting and financial accounting.

68) By reporting and interpreting relevant data, the controller exerts an influence that impels management toward making informed decisions.

69) The controller is generally a staff position.

70) Management accountants must have behavioral and interpersonal skills.

71) The Sarbanes-Oxley legislation was passed in response to a series of corporate scandals.

72) The Sarbanes-Oxley legislation does NOT provide a process for employees to report violations of illegal and unethical acts.

73) Management accountants have important ethical responsibilities that are related to competence, confidentiality, integrity, and credibility.

74) A managerial accountant should not disclose confidential information to an outside party (such as a newspaper) unless legally obligated to do so.

75) If a managerial accountant were not keeping up with current developments in managerial accounting, that behavior might violate a competence standard of professional ethical behavior.

76) If a managerial accountant suspected his or her immediate superior of wrongdoing, the managerial accountant should request an immediate meeting with the Board of Directors.

77) The Institute of Management Accountants provides a hotline to discuss ethical issues.

78) When faced with a potential ethical conflict, the managerial accountant should first consult any internal procedures of that organization.

79) When confronted with a potential ethical conflict, a managerial accountant should not contact his or her personal attorney concerning rights and obligations.

80) Most professional accounting organizations around the globe do NOT issue statements about professional ethics.

81) Management accounting:

A) focuses on estimating future revenues, costs, and other measures to forecast activities and their results
B) provides information about the company as a whole
C) reports information that has occurred in the past that is verifiable and reliable
D) provides information that is generally available only on a quarterly or annual basis

82) Managers use management accounting information to ________ strategy.

A) choose
B) communicate
C) implement
D) All of these answers are correct.

83) Financial accounting:

A) focuses on the future and includes activities such as preparing next year’s operating budget
B) must comply with GAAP (generally accepted accounting principles)
C) reports include detailed information on the various operating segments of the business such as product lines or departments
D) is prepared for the use of department heads and other employees

84) The person MOST likely to use ONLY financial accounting information is a:

A) factory shift supervisor
B) vice president of operations
C) current shareholder
D) department manager

85) The person MOST likely to use management accounting information is a(n):

A) banker evaluating a credit application
B) shareholder evaluating a stock investment
C) governmental taxing authority
D) assembly department supervisor

86)

Financial accounting provides the PRIMARY source of information for:
A)

decision making in the finishing department
B)

improving customer service
C)

preparing the income statement for shareholders
D)

planning next year’s operating budget

87)

Which of the following descriptors refers to management accounting information?
A)

It is verifiable and reliable.
B)

It is driven by rules.
C)

It is prepared for shareholders.
D)

It provides reasonable and timely estimates.

88)

Which of the following statements refers to management accounting information?
A)

There are no regulations governing the reports.
B)

The reports are generally delayed and historical.
C)

The audience tends to be stockholders, creditors, and tax authorities.
D)

It primarily measures and records business transactions.

89)

Which of the following groups would be LEAST likely to receive detailed management accounting reports?
A)

stockholders
B)

sales representatives
C)

production supervisors
D)

managers

90)

Management accounting information includes:
A)

tabulated results of customer satisfaction surveys
B)

the cost of producing a product
C)

the percentage of units produced that are defective
D)

All of these answers are correct.

91)

Cost accounting:
A)

provides information on the efficiency of factory labor
B)

provides information on the cost of servicing commercial customers
C)

provides information on the performance of an operating division
D)

All of these answers are correct.

92)

Which of the following types of information are used in management accounting?
A)

financial information
B)

nonfinancial information
C)

information focused on the long term
D)

All of these answers are correct.

93)

Modern cost accounting plays a role in:
A)

planning new products
B)

evaluating operational processes
C)

controlling costs
D)

All of these answers are correct.

94)

A data warehouse or infobarn:
A)

is reserved for exclusive use by the CFO
B)

is primarily used for financial reporting purposes
C)

stores information used by different managers for multiple purposes
D)

gathers only nonfinancial information

95)

Cost accounting provides all of the following EXCEPT:
A)

information for management accounting and financial accounting
B)

pricing information from marketing studies
C)

financial information regarding the cost of acquiring resources
D)

nonfinancial information regarding the cost of operational efficiencies

96)

Management accounting includes:
A)

implementing strategies
B)

developing budgets
C)

preparing special studies and forecasts
D)

All of these answers are correct.

97)

Financial accounting is concerned PRIMARILY with:
A)

external reporting to investors, creditors, and government authorities
B)

cost planning and cost controls
C)

profitability analysis
D)

providing information for strategic and tactical decisions

98)

Financial accounting provides a historical perspective, whereas management accounting emphasizes:
A)

the future
B)

past transactions
C)

a current perspective
D)

reports to shareholders

99)

An Enterprise Resource Planning System can best be described as:
A)

a collection of programs that use a variety of unconnected databases
B)

a single database that collects data and feeds it into applications that support each of the company’s business activities, such as purchases, production, distribution, and sales
C)

a database that is primarily used by a purchasing department to determine the correct amount of a particular supply item to purchase
D)

a sophisticated means of linking two or more companies to facilitate their planning processes

100)

The approaches and activities of managers in short-run and long-run planning and control decisions that increase value for customers and lower costs of products and services are known as:
A)

value chain management
B)

enterprise resource planning
C)

cost management
D)

customer value management

101)

Which of the following statements concerning an organization’s strategy is NOT true?
A)

Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives.
B)

Management accountants provide input to help managers formulate strategy.
C)

A good strategy will always overcome poor implementation.
D)

Businesses usually follow one of two broad strategies: offering a quality product at a low price, or offering a unique product or service priced higher than the competition.

102)

Strategy specifies:
A)

how an organization matches its own capabilities with the opportunities in the marketplace
B)

standard procedures to ensure quality products
C)

incremental changes for improved performance
D)

the demand created for products and services

103)

Which of the following is NOT one of the questions management accountants might attempt to help answer in the formulation of strategy?
A)

Who are our most important customers?
B)

What substitute products exist in the marketplace?
C)

Does the strategy comply with GAAP (Generally Accepted Accounting Principles)?
D)

Will adequate cash be available to implement the strategy?

104)

Strategy is formulated by answering all of the following EXCEPT:
A)

Who are our most important customers?
B)

Is industry demand growing or shrinking?
C)

Will our external auditors certify our strategy?
D)

How sensitive are purchasers to price, quality, and service?

105)

In designing strategy, a company must match the opportunities and threats in the marketplace with:
A)

those of the CFO (Chief Financial Officer)
B)

its resources and capabilities
C)

branding opportunities
D)

capabilities of current suppliers

106)

Which of the following statements about customer value is NOT true?
A)

Customer value is shown in a corporation’s balance sheet.
B)

Creating value for customers is an important part of planning and implementing strategy.
C)

How our product delivers customer value should be determined as part of a company’s strategy formulation.
D)

It is possible to simultaneously lower cost and increase customer value.

107)

Place the four business functions in the order they appear along the value chain:
A = Customer service
B = Design
C = Distribution
D = Production
A)

A B D C
B)

A C D B
C)

B D C A
D)

B A D C

108)

R&D, production, and customer service are business functions that are all included as part of:
A)

the value chain
B)

benchmarking
C)

marketing
D)

the supply chain

109)

The value chain is the sequence of business functions in which:
A)

value is deducted from the products or services of an organization
B)

value is proportionately added to the products or services of an organization
C)

products and services are evaluated with respect to their value to the supply chain
D)

usefulness is added to the products or services of an organization

110)

________ is the generation of, and experimentation with, ideas related to new products, services, or processes.
A)

Research and development
B)

Design of products, services, or processes
C)

Production
D)

Marketing

111)

________ is the detailed planning and engineering of products, services, or processes.
A)

Distribution
B)

Design of products, services, or processes
C)

Production
D)

Marketing

112)

________ is the acquisition, coordination, and assembly of resources to produce a product or deliver a service.
A)

Research and development
B)

Customer service
C)

Production
D)

Marketing

113)

________ is the manner by which companies promote and sell their products or services to customers or perspective customers.
A)

Distribution
B)

Customer service
C)

Research and development
D)

Marketing

114)

________ is the delivery of products or services to customers.
A)

Distribution
B)

Customer service
C)

Production
D)

Design of products, services, or processes

115)

_________ is the after-sale support provided to customers.
A)

Distribution
B)

Customer service
C)

Production
D)

Marketing

116)

________ is a strategy that integrates people and technology in all business functions to enhance relationships with customers, partners, and distributors.
A)

Supply-chain analysis
B)

Customer relationship management
C)

Value-chain analysis
D)

Continuous quality improvement

117)

Customer relationship management initiatives use technology to coordinate all:
A)

production activities
B)

research activities
C)

customer-facing activities
D)

inventory management activities

118)

________ describe(s) the flow of goods, services, and information from the purchase of materials to the delivery of products to consumers, regardless of whether those activities occur in the same organization or with other organizations.
A)

Supply chain
B)

Key success factors
C)

Continuous improvement
D)

Customer focus

119)

________ is an operational factor that directly affects the economic viability of the organization.
A)

Customer focus
B)

A key success factor
C)

Continuous improvement
D)

Supply chain

120)

________ is a philosophy in which management improves operations throughout the value chain to deliver products and services that exceed customer expectations.
A)

Cost-benefit approach
B)

Customer focus
C)

Customer relationship management
D)

Total quality management

121)

Which item is NOT an area that customers want to see improved levels of performance in?
A)

innovation
B)

quality
C)

cost and efficiency
D)

profit

122)

Which of the following statements about a company’s supply chain is true?
A)

A company’s supply chain is always internal to a firm.
B)

A company’s supply chain is always external to a firm.
C)

A company’s supply chain is the same thing as a company’s value chain.
D)

Management accountants provide information to enhance a company’s supply chain.

123)

Strategy should focus PRIMARILY on the organization’s:
A)

shareholders
B)

customers
C)

products
D)

employees

124)

Whose perceptions of the company’s products or services are the most important to the manager?
A)

board of directors’ perception
B)

customers’ perception
C)

president’s perception
D)

stockholders’ perception

125)

To be successful, a company needs to be:
A)

customer driven
B)

“driven” by the board of directors
C)

employee driven
D)

management driven

126)

Customers are demanding improved performance related to:
A)

reduced costs
B)

both reduced costs and increased quality
C)

lower costs, improved quality, and improved customer service
D)

All of these answers are correct.

127)

Customer response time involves:
A)

the speed it takes a customer to respond to an advertisement and place an order
B)

the speed at which an organization responds to customer requests
C)

the speed it takes to develop a new product
D)

the speed it takes an organization to develop a Total Quality Management (TQM) program

128)

Which of the following is NOT a way for a company to improve customer response time?
A)

Increase capacity of bottleneck operations.
B)

Purchase material in larger quantities.
C)

Use faster delivery procedures.
D)

Produce the product more quickly.

129)

Place the five steps in the decision-making process in the correct order:
A = Obtain information
B = Make decisions by choosing among alternatives
C = Identify the problem and uncertainties
D = Implement the decision
E = Make predictions about the future
A)

D B E A C
B)

E D A B C
C)

C A E B D
D)

A E B D C

130)

Planning consists of all of these areas EXCEPT:
A)

selecting organizational goals
B)

deciding how to attain the desired goals
C)

evaluating performance
D)

predicting results under various alternatives

131)

The most important planning tool is a ________.
A)

performance evaluation report
B)

balanced scorecard
C)

goal
D)

budget

132)

A report showing the actual financial results for a period compared to the budgeted financial results for that same period would most likely be called a:
A)

strategic plan
B)

management forecast
C)

performance report
D)

revised plan

133)

The process of preparing a budget:
A)

forces coordination and communication across business functions
B)

increases accounting efficiencies
C)

reduces overcapacity
D)

promotes production automation

134)

Control includes:
A)

implementing planning decisions
B)

evaluating performance
C)

providing feedback to help with future decision making
D)

All of these answers are correct.

135)

A budget:
A)

is a quantitative expression of a proposed management plan
B)

helps translate strategy into actions
C)

aids in the coordination and communication among various business functions
D)

All of these answers are correct.

136)

A budget can serve as:
A)

a planning tool
B)

a control tool
C)

a basis for preparing financial statements
D)

a planning and control tool

137)

Employees ________ how their performance is measured.
A)

pay close attention to
B)

pay no attention to
C)

rarely know
D)

Both B and C are correct.

138)

Linking rewards to performance:
A)

helps to motivate managers
B)

allows companies to charge premium prices
C)

should only be based on financial information
D)

All of these answers are correct.

139)

Control measures should:
A)

be set and not changed until the next budget cycle
B)

be flexible to allow for employees who are slackers
C)

be kept confidential from employees so that competitors don’t have an opportunity to gain a competitive advantage
D)

be linked by feedback to planning

140)

A well-conceived plan allows managers the ability to:
A)

not make decisions again until the next planning session
B)

keep lower-level managers from implementing change
C)

underestimate costs so that actual operating results will be favorable when comparisons are made
D)

take advantage of unforeseen opportunities

141)

Which of the following statements concerning performance reports is NOT correct?
A)

The performance report shows actual performance as compared to the budget.
B)

The performance report is a feedback tool.
C)

The performance report often leads to more investigations and action.
D)

The performance report contains no actual results due to confidentiality.

142)

Management accounting is considered successful when it:
A)

helps creditors evaluate the company’s performance
B)

helps managers improve their decisions
C)

is accurate
D)

is relevant and reported annually

143)

Which item is NOT a guideline used by management accountants to assist in strategic and operational decision making?
A)

cost-benefit approach
B)

behavioral and technical considerations
C)

different costs for different purposes
D)

balanced scorecard

144)

The scenario that resources should be spent if the expected benefits to the company exceed the expected costs describes:
A)

cost-benefit approach
B)

behavioral and technical considerations
C)

balanced scorecard
D)

different costs for different purposes

145)

The act of simply measuring and reporting information:
A)

focuses the attention of employees on those processes
B)

diverts employee’s attention to other activities
C)

disproves the saying “What gets measured gets managed.”
D)

has no effect on employee behavior

146)

Which statement is FALSE?
A)

“What gets measured gets managed.”
B)

People react to measurements.
C)

Employees spend more attention on those variables that are not getting measured.
D)

“If I can’t measure it, I can’t manage it.”

147)

The PRIMARY criterion when faced with a resource allocation decision is:
A)

cost minimization
B)

reduction in the amount of time required to perform a particular job
C)

achievement of organizational goals
D)

how well the alternative options help achieve organizational goals in relation to the costs incurred for these systems

148)

Which of the following statements about the cost-benefit approach is TRUE?
A)

Resources should be spent if they are expected to better attain company goals in relation to the expected costs of these resources.
B)

In a cost-benefit analysis, both costs and benefits are easy to obtain.
C)

Resources should be spent if the costs of a decision outweigh the benefits of the decision.
D)

A cost-benefit approach would not be appropriate for a decision to install a budget system or not.

149)

The person(s) directly responsible for attaining of organizational objectives is/are:
A)

the treasurer
B)

line management
C)

the controller
D)

the chief financial officer

150)

The person(s) responsible for providing advice and assistance to line managers is/are:
A)

the controller
B)

the chief financial officer
C)

staff management
D)

the treasurer

151)

As teamwork has become more prominent in the last few years, differences between staff and line management:
A)

have increased
B)

have become more important relative to promotions
C)

have diminished
D)

have only been evident in the employee reward system

152)

The Institute of Management Accountants (IMA):
A)

is a professional organization of management accountants
B)

is a professional organization of financial accountants
C)

is a professional subsidiary of the Financial Accounting Standards Board (FASB)
D)

issues standards for financial accounting

153)

Line management includes:
A)

manufacturing managers
B)

human-resource managers
C)

information-technology managers
D)

management-accounting managers

154)

Staff management includes:
A)

manufacturing managers
B)

human-resource managers
C)

purchasing managers
D)

distribution managers

155)

Responsibilities of a CFO include all of the following EXCEPT:
A)

providing financial reports to shareholders
B)

managing short-term and long-term financing
C)

investing in new equipment
D)

preparing federal, state, and international tax returns

156)

The ________ is primarily responsible for management accounting and financial accounting.
A)

COO (Chief Operating Officer)
B)

CIO (Chief Information Officer)
C)

treasurer
D)

controller

157)

All of the following report to the CFO EXCEPT the:
A)

controller
B)

tax department manager
C)

production manager
D)

treasurer

158)

Examples of the controller’s functions include all EXCEPT:
A)

operations administration
B)

budgeting
C)

investor relations
D)

general ledger

159)

Management accounting is an integral part of the ________ function in an organization.
A)

treasurer’s
B)

controller’s
C)

internal audit
D)

president’s

160)

Which of the following issues is NOT addressed by the Sarbanes-Oxley legislation?
A)

improving internal control
B)

corporate governance
C)

disclosure practices of public corporations
D)

disclosure practices of private companies

161)

The Standards of Ethical Conduct for management accountants include concepts related to:
A)

competence, performance, integrity, and reporting
B)

competence, confidentiality, integrity, and credibility
C)

experience, integrity, reporting, and objectivity
D)

None of these answers are correct.

162)

Which item is NOT an indication of competence under the Standards of Ethical Conduct?
A)

Maintain an appropriate level of professional expertise by continually developing knowledge and skills.
B)

Keep information confidential except when disclosure is authorized or legally required.
C)

Perform professional duties in accordance with relevant laws, regulations, and technical standards.
D)

Provide decision support information and recommendations that are accurate, clear, concise, and timely.

163)

Which item is NOT an indication of confidentiality under the Standards of Ethical Conduct?
A)

Keep information confidential except when disclosure is authorized or legally required.
B)

Inform all relevant parties regarding appropriate use of confidential information.
C)

Refrain from using confidential information for unethical or illegal advantage.
D)

All of the above indicate confidentiality.

164)

Which item is an indication of integrity under the Standards of Ethical Conduct?
A)

Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
B)

Communicate information fairly and objectively.
C)

Keep information confidential except when disclosure is authorized or legally required.
D)

Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.

165)

Which item is an indication of credibility under the Standards of Ethical Conduct?
A)

Maintain an appropriate level of professional expertise by continually developing knowledge and skills.
B)

Refrain from using confidential information for unethical or illegal advantage.
C)

Abstain from engaging in or supporting any activity that might discredit the profession.
D)

Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law.

166)

Ethical challenges for management accountants include:
A)

whether to accept gifts from suppliers, knowing it is an effort to indirectly influence decisions
B)

whether to report unfavorable department information that may result in unfavorable consequences for a friend
C)

whether to file a tax return this year
D)

Both A and B are correct.

167)

Which of the following actions should a management accountant take first in confronting a potential ethical conflict concerning your direct supervisor?
A)

Inform the Board of Directors of the existence of a potential conflict.
B)

Confront the supervisor directly.
C)

Discuss the situation with your supervisor’s direct supervisor.
D)

Review your organization’s procedures concerning resolution of such a conflict.

168)

If there is an ethical conflict concerning your direct supervisor, you may contact all of the following groups EXCEPT:
A)

local media
B)

audit committee
C)

executive committee
D)

board of directors

169)

If there is an ethical conflict concerning your direct supervisor, when is it appropriate to contact authorities or individuals not employed by the organization?
A)

when there is a personal conflict
B)

when your supervisor is about to receive a bonus
C)

when there is a clear violation of the law
D)

when you are about to be terminated

170)

For each report listed below, identify whether the major purpose of the report is for (1) routine internal reporting, (2) nonroutine internal reporting, or for (3) external reporting to investors and other outside parties.

Item:
a. study detailing sale information of the top-ten selling products
b. weekly report of total sales generated by each store in the metropolitan area
c. annual Report sent to shareholders
d. monthly report comparing budgeted sales by store to actual sales

171)

Which questions do management accountants help answer in the strategy formulation process?

172)

Classify each cost item into one of the business functions of the value chain, either (1) R&D, (2) design, (3) production, (4) marketing, (5) distribution, or (6) customer service.

Item:
a. cost of samples mailed to promote sales of a new product
b. labor cost of workers in the manufacturing plant
c. bonus paid to a person with a 90% satisfaction rating in handling customers with complaints
d. transportation costs for shipping products to retail outlets

173)

Classify each cost item of Ripon Printers into one of the business functions of the value chain, either (1) R&D, (2) design, (3) production, (4) marketing, (5) distribution, or (6) customer service.

Item:
a. cost of customer order forms
b. cost of paper used in manufacture of books
c. cost of paper used in packing cartons to ship books
d. cost of paper used in display at national trade show
e. depreciation of trucks used to transport books to college bookstores
f. cost of the wood used to manufacture paper
g. salary of the scientists attempting to find another source of printing ink
h. cost of defining the book size so that a standard-sized box is filled to capacity

174)

In order, list the five steps in the decision-making process.

175)

For each type of report listed below, identify one planning decision and one controlling decision for which the information would be helpful. Assume you are a Walgreen Company store.

Item:
a. annual financial statements for the past three years
b. report detailing sales by department by each hour of the day for the past week
c. special study regarding increased road traffic due to the construction of a new shopping mall at a near-by intersection

176)

List the four standards of ethical conduct for management accountants. For each standard, give an example that demonstrates compliance with that standard.

177)

Describe management accounting and financial accounting.

178)

Is financial accounting or management accounting more useful to an operations manager? Why?

179)

Is it possible to have an active cost management program without an Enterprise Resource Planning (ERP) System?

180)

What competitive advantage could a company obtain from a successful cost management program?

181)

What is strategy? Briefly describe the two broad types of strategies that companies may choose to pursue.

182)

Briefly describe how managers make use of management accounting information.

183)

Generally, companies follow one of two broad strategies: offering a quality product at a low price, or offering a unique product or service priced higher than the competition. Assume you are opening a small food outlet across the street from your campus. How might that business be operated under each of the two broad strategies? Consider the following specific operational areas:

a. target customers
b. products offered
c. product pricing
d. location choice
e. advertising content
f. advertising media

184)

Generally, companies follow one of two broad strategies: offering a quality product at a low price, or offering a unique product or service priced higher than the competition. Is it possible to follow a strategy that is “in the middle”?

185)

Describe the value chain and how it can help organizations become more effective.

186)

In most organizations, customer satisfaction is one of the top priorities. As such, attention to customers is necessary for success. Briefly describe the four types of demands customers are currently placing on organizational performance.

187)

Briefly explain the planning and control activities in management accounting. How are these two activities linked to each other?

188)

Explain how a budget can help management implement strategy.

189)

Explain how a customer focus can result in increased profits for a company.

190)

Complete a performance report for the month of May, 2007, for the Daily Bulletin, a regional newspaper showing four columns: 1) Actual Result; 2) Budgeted Amount; 3) Difference: Actual Result minus Budgeted Amount; 4) Difference as a Percentage of Budgeted Amount, given the following data:

Advertising pages sold 900
Budgeted advertising pages 910
Advertising revenue $4,368,000
Budget advertising revenue $4,410,000

Does the report indicate any cause for managerial investigation?

191)

Discuss the cost-benefit approach guideline management accountants use to provide value in strategic decision making.

192)

Discuss the potential behavior implications of performance evaluation.

193)

What areas of responsibility does a chief financial officer have in a typical organization?

194)

How does a controller help “control” a company?

195)

You have been employed as an entry-level management accountant for a little under a year. You suspect that your immediate supervisor is involved in a significant fraud involving diverting of company assets to personal use. Briefly describe the steps you might take to resolve this dilemma.

Chapter 2

An Introduction to Cost Terms and Purposes

1)

Products, services, departments, and customers may be cost objects.

2)

Costs are accounted for in two basic stages: assignment followed by accumulation.

3)

Actual costs and budgeted costs are two different terms referring to the same thing.

4)

Accountants define a cost as a resource to be sacrificed to achieve a specific objective.

5)

A cost object is always either a product or a service.

6)

A department could be considered a cost object.

7)

The same cost may be direct for one cost object and indirect for another cost object.

8)

Assigning direct costs poses more problems than assigning indirect costs.

9)

Improvements in information-gathering technologies are making it possible to trace more costs as direct.

10)

Misallocated indirect costs may lead to promoting products that are not profitable.

11)

The materiality of the cost is a factor in classifying the cost as a direct or indirect cost.

12)

The cost of a customized machine only used in the production of a single product would be classified as a direct cost.

13)

Some fixed costs may be classified as direct manufacturing costs.

14)

The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP).

15)

Fixed costs have no cost driver in the short run, but may have a cost driver in the long run.

16)

Costs that are difficult to change over the short run are always variable over the long run.

17)

A decision maker cannot adjust capacity over the short run.

18)

Fixed costs vary with the level of production or sales volume.

19)

Currently, most administrative personnel costs would be classified as fixed costs.

20)

Fixed costs depend on the resources used, not the resources acquired.

21)

The variable cost per unit of a product should stay the same throughout the relevant range of production.

22)

An appropriate cost driver for shipping costs might be the number of units shipped.
23)

When making decisions using fixed costs, the focus should be on total costs and not unit costs.

24)

When 50,000 units are produced the fixed cost is $10 per unit. Therefore, when 100,000 units are produced fixed costs will remain at $10 per unit.

25)

A unit cost is computed by dividing total cost by the number of units.

26)

Unit costs and average costs are really the same thing.

27)

Service-sector companies provide services or intangible products to their customers.

28)

America on Line (AOL) would be an example of a merchandising company.

29)

Merchandising companies purchase products and sell them to customers without changing their basic form.

30)

Merchandising companies only hold two types of inventories: merchandise inventory, and direct material.

31)

Manufacturing sector firms normally hold three types of inventory: direct materials inventory, work-in-process inventory, and finished goods inventory.

32)

Work-in-process inventory are goods partially worked on but not yet completed.

33)

Direct material costs are the acquisition costs of all materials that eventually become part of the cost object and cannot be traced to the cost object in an economically feasible way.
34)

Acquisition costs of direct materials include freight-in charges, sales taxes, and custom duties.

35)

Indirect manufacturing costs include the compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way.

36)

Direct manufacturing labor includes wages and fringe benefits paid to machine operators.

37)

Inventoriable costs are reported as an asset when incurred and expensed on the income statement when the product is sold.

38)

Cost of goods sold refers to the products brought to completion, whether they were started before or during the current accounting period.

39)

Operating income is sales revenue minus cost of goods manufactured.

40)

All manufacturing costs are inventoriable costs.

41)

All costs reported on the income statement of a service-sector company are period costs.

42)

Period costs are never included as part of inventory.

43)

Conversion costs include all direct manufacturing costs.

44)

Inventory of a manufacturing firm includes goods partially worked on but not yet fully completed.
45)

The wages of a plant supervisor would be classified as a period cost.

46)

For external reporting, GAAP requires that costs be classified as either variable or fixed.

47)

Depreciation can be classified as either an inventoriable cost or a period cost, depending on what is being depreciated.

48)

Insurance on a factory can be classified as a period cost.

49)

Overtime premium consists of the wages paid to all workers (for both direct labor and indirect labor) in excess of their straight-time wage rates.

50)

A product cost that is useful for one decision may not be useful information for another decision.

51)

For external reporting purposes, indirect manufacturing costs must be allocated to individual units.

52)

Overtime premium is normally considered as a component of direct labor.

53)

If a worker is paid for 8 hours, but is idle for 1 of those 8 hours, the 1 hour of idle time would be considered a component of direct labor.

54)

The role of the cost accountant is to tailor the cost calculation to fit the current decision situation.

55)

Cost accounting and cost management include calculating various costs, obtaining financial and nonfinancial information, and analyzing relevant information for decision making.

56)

A costing system traces direct costs and allocates indirect costs to products.

57)

Management accountants help managers identify which information is relevant to a particular decision.

58)

When making strategic decisions about which products to produce, managers do not need to know how revenues and costs vary with changes in output level.

59)

Cost objects include:
A)

products
B)

customers
C)

departments
D)

All of these answers are correct.

60)

Actual costs are:
A)

the costs incurred
B)

budgeted costs
C)

estimated costs
D)

forecasted costs

61)

The general term used to identify both the tracing and the allocation of accumulated costs to a cost object is:
A)

cost accumulation
B)

cost assignment
C)

cost tracing
D)

conversion costing

62)

In order to make decisions, managers need to know:
A)

actual costs
B)

budgeted costs
C)

both costs
D)

neither cost

63)

The collection of accounting data in some organized way is:
A)

cost accumulation
B)

cost assignment
C)

cost tracing
D)

conversion costing

64)

Budgeted costs are:
A)

the costs incurred this year
B)

the costs incurred last year
C)

planned or forecasted costs
D)

competitor’s costs

65)

Cost assignment is:
A)

always arbitrary
B)

includes tracing and allocating
C)

the same as cost accumulation
D)

finding the difference between budgeted and actual costs

66)

A cost system determines the cost of a cost object by:
A)

accumulating and then assigning costs
B)

accumulating costs
C)

assigning and then accumulating costs
D)

assigning costs

67)

Which of the following does NOT affect the direct/indirect classification of a cost?
A)

the level of budgeted profit for the next year
B)

the materiality of the cost in question
C)

available technology to gather information about the cost
D)

the design of the operation

68)

Which of the following statements about the direct/indirect cost classification is NOT true?
A)

Direct costs are always traced.
B)

Direct costs are always allocated.
C)

The design of operations affects the direct/indirect classification.
D)

The direct/indirect classification depends on the choice of cost object.

69)

Cost tracing is:
A)

the assignment of direct costs to the chosen cost object
B)

a function of cost allocation
C)

the process of tracking both direct and indirect costs associated with a cost object
D)

the process of determining the actual cost of the cost object

70)

Cost allocation is:
A)

the process of tracking both direct and indirect costs associated with a cost object
B)

the process of determining the actual cost of the cost object
C)

the assignment of indirect costs to the chosen cost object
D)

a function of cost tracing

71)

The determination of a cost as either direct or indirect depends upon the:
A)

accounting system
B)

allocation system
C)

cost tracing system
D)

cost object chosen

72)

Classifying a cost as either direct or indirect depends upon:
A)

the behavior of the cost in response to volume changes
B)

whether the cost is expensed in the period in which it is incurred
C)

whether the cost can be easily identified with the cost object
D)

whether an expenditure is avoidable or not in the future

73)

A manufacturing plant produces two product lines: football equipment and hockey equipment. Direct costs for the football equipment line are the:
A)

beverages provided daily in the plant break room
B)

monthly lease payments for a specialized piece of equipment needed to manufacture the football helmet
C)

salaries of the clerical staff that work in the company administrative offices
D)

utilities paid for the manufacturing plant

74)

A manufacturing plant produces two product lines: football equipment and hockey equipment. An indirect cost for the hockey equipment line is the:
A)

material used to make the hockey sticks
B)

labor to bind the shaft to the blade of the hockey stick
C)

shift supervisor for the hockey line
D)

plant supervisor

75)

Which one of the following items is a direct cost?
A)

Customer-service costs of a multiproduct firm; Product A is the cost object.
B)

Printing costs incurred for payroll check processing; payroll check processing is the cost object.
C)

The salary of a maintenance supervisor in a multiproduct manufacturing plant; Product B is the cost object.
D)

Utility costs of the administrative offices; the accounting department is the cost object.

76)

Indirect manufacturing costs:
A)

can be traced to the product that created the costs
B)

can be easily identified with the cost object
C)

generally include the cost of material and the cost of labor
D)

may include both variable and fixed costs

77)

All of the following are true EXCEPT that indirect costs:
A)

may be included in prime costs
B)

are not easily traced to products or services
C)

vary with the selection of the cost object
D)

may be included in manufacturing overhead

78)

Which statement is TRUE?
A)

All variable costs are direct costs.
B)

Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.
C)

All fixed costs are indirect costs.
D)

All direct costs are variable costs.

79)

A mixed cost is:
A)

a fixed cost
B)

a cost with fixed and variable elements
C)

a variable cost
D)

always an indirect cost

80)

Which of the following is a mixed cost?
A)

monthly rent payment
B)

manager’s salary
C)

monthly telephone bill
D)

direct materials

81)

Which statement is TRUE?
A)

A direct cost of one cost object cannot be an indirect cost of another cost object.
B)

All variable costs are direct costs.
C)

A direct cost of one cost object can be an indirect cost of another cost object.
D)

All fixed costs are direct costs.

82)

Cost behavior refers to:
A)

how costs react to a change in the level of activity
B)

whether a cost is incurred in a manufacturing, merchandising, or service company
C)

classifying costs as either inventoriable or period costs
D)

whether a particular expense has been ethically incurred

83)

An understanding of the underlying behavior of costs helps in all of the following EXCEPT:
A)

costs can be better estimated as volume expands and contracts
B)

true costs can be better evaluated
C)

process inefficiencies can be better identified and as a result improved
D)

sales volume can be better estimated

84)

At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually:
A)

are considered a variable cost
B)

are considered a fixed cost
C)

depend on the scheduling of floor workers
D)

depend on the scheduling of production runs

85)

Variable costs:
A)

are always indirect costs
B)

increase in total when the actual level of activity increases
C)

include most personnel costs and depreciation on machinery
D)

can always be traced directly to the cost object

86)

Fixed costs:
A)

may include either direct or indirect costs
B)

vary with production or sales volumes
C)

include parts and materials used to manufacture a product
D)

can be adjusted in the short run to meet actual demands

87)

Fixed costs depend on the:
A)

amount of resources used
B)

amount of resources acquired
C)

volume of production
D)

volume of sales

88)

Which one of the following is a variable cost for an insurance company?
A)

rent
B)

president’s salary
C)

sales commissions
D)

property taxes

89)

Which of the following is a fixed cost for an automobile manufacturing plant?
A)

administrative salaries
B)

electricity used by assembly-line machines
C)

sales commissions
D)

windows for each car produced

90)

If each furnace requires a hose that costs $20 and 2,000 furnaces are produced for the month, the total cost for hoses is:
A)

considered to be a direct fixed cost
B)

considered to be a direct variable cost
C)

considered to be an indirect fixed cost
D)

considered to be an indirect variable cost

91)

The MOST likely cost driver of distribution costs is the:
A)

number of parts within the product
B)

number of miles driven
C)

number of products manufactured
D)

number of production hours

92)

The MOST likely cost driver of direct material costs is the:
A)

number of parts within the product
B)

number of miles driven
C)

number of products manufactured
D)

number of production hours

93)

Which of the following statements is FALSE?
A)

There is a cause-and-effect relationship between the cost driver and the level of activity.
B)

Fixed costs have cost drivers over the short run.
C)

Over the long run all costs have cost drivers.
D)

Volume of production is a cost driver of direct manufacturing costs.

94)

A band of normal activity or volume in which specific cost-volume relationships are maintained is referred to as the:
A)

average range
B)

cost-allocation range
C)

cost driver range
D)

relevant range

95)

Within the relevant range, if there is a change in the level of the cost driver, then:
A)

total fixed costs and total variable costs will change
B)

total fixed costs and total variable costs will remain the same
C)

total fixed costs will remain the same and total variable costs will change
D)

total fixed costs will change and total variable costs will remain the same

96)

Within the relevant range, if there is a change in the level of the cost driver, then:
A)

fixed and variable costs per unit will change
B)

fixed and variable costs per unit will remain the same
C)

fixed costs per unit will remain the same and variable costs per unit will change
D)

fixed costs per unit will change and variable costs per unit will remain the same

97)

Which of the following would be LEAST likely to be a cost driver for a company’s accounting costs?
A)

the number of employees in the accounting department
B)

the number of invoices processed
C)

the number of units sold
D)

the square footage of the office space used by the accounting department

98)

A unit cost is computed by:
A)

multiplying total cost by the number of units
B)

dividing total cost by the number of units
C)

dividing variable cost by the number of units
D)

adding variable cost to fixed cost

99)

In making product mix and pricing decisions, managers should focus on:
A)

total costs
B)

unit costs
C)

variable costs
D)

fixed costs

100)

When 10,000 units are produced, fixed costs are $14 per unit. Therefore, when 20,000 units are produced fixed costs will:
A)

increase to $28 per unit
B)

remain at $14 per unit
C)

decrease to $7 per unit
D)

total $280,000

101)

When 10,000 units are produced, variable costs are $6 per unit. Therefore, when 20,000 units are produced:
A)

variable costs will total $120,000
B)

variable costs will total $60,000
C)

variable unit costs will increase to $12 per unit
D)

variable unit costs will decrease to $3 per unit

102)

Christi Manufacturing provided the following information for last month:

Sales $10,000
Variable costs 3,000
Fixed costs 5,000
Operating income $2,000

If sales double next month, what is the projected operating income?
A)

$4,000
B)

$7,000
C)

$9,000
D)

$12,000

103)

Kym Manufacturing provided the following information for last month:

Sales $12,000
Variable costs 4,000
Fixed costs 1,000
Operating income $7,000

If sales double next month, what is the projected operating income?
A)

$14,000
B)

$15,000
C)

$18,000
D)

$19,000

104)

Wheel and Tire Manufacturing currently produces 1,000 tires per month. The following per unit data apply for sales to regular customers:

Direct materials $20
Direct manufacturing labor 3
Variable manufacturing overhead 6
Fixed manufacturing overhead 10
Total manufacturing costs $39

The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?
A)

$39,000
B)

$78,000
C)

$68,000
D)

$62,000

105)

XIAN Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently XIAN produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change?
A)

Total manufacturing costs will increase and unit manufacturing costs will stay the same.
B)

Total manufacturing costs will increase and unit manufacturing costs will decrease.
C)

Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.
D)

Total manufacturing costs will stay the same and unit manufacturing costs will decrease.

106)

Tire and Spoke Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply for sales to regular customers:

Direct materials $50
Direct manufacturing labor 5
Variable manufacturing overhead 14
Fixed manufacturing overhead 10
Total manufacturing costs $79

The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What is the per unit cost of producing 2,000 bicycles?
A)

$79 per unit
B)

$158 per unit
C)

$74 per unit
D)

$134 per unit

107)

The plant has capacity for 2,000 axles and is considering expanding production to 1,500 axles. What is the total cost of producing 1,500 axles?
A)

$85,000
B)

$170,000
C)

$107,500
D)

$102,500

108)

What is the per unit cost when producing 1,500 axles?
A)

$71.67
B)

$107.50
C)

$85.00
D)

$170.00

109)

What is the average manufacturing cost per unit?
A)

$40.00
B)

$42.55
C)

$0.025
D)

$75.00

110)

What is the amount of ending finished goods inventory?
A)

$1,880,000
B)

$120,000
C)

$225,000
D)

$105,000

111)

________ – sector companies purchase materials and components and convert them into finished goods.
A)

Merchandising
B)

Service
C)

Manufacturing
D)

Professional

112)

________ – sector companies purchase and then sell tangible products without changing their basic form.
A)

Merchandising
B)

Professional
C)

Service
D)

Manufacturing

113)

________ – sector companies provide intangible products.
A)

Professional
B)

Manufacturing
C)

Merchandising
D)

Service

114)

What is the amount of gross margin?
A)

$1,750,000
B)

$3,525,000
C)

$5,405,000
D)

$1,645,000

115)

What is the average manufacturing cost per unit?
A)

$50.00
B)

$50.85
C)

$17.65
D)

$85.00

116)

What is the amount of ending finished goods inventory?
A)

$42,500
B)

$25,424
C)

$25,000
D)

$1,475,000

117)

What is the amount of gross margin?
A)

$1,475,000
B)

$1,500,000
C)

$2,507,500
D)

$1,032,500

118)

Which of the following companies is part of the service sector of our economy?
A)

Wal-Mart
B)

Bank of America
C)

General Motors
D)

Amazon.com

119)

Which of the following companies is part of the merchandising sector of our economy?
A)

General Motors
B)

Intel
C)

The GAP
D)

Robert Meyer Accounting Firm

120)

Which of the following companies is part of the manufacturing sector of our economy?
A)

Nike
B)

Barnes & Noble
C)

Corvette Law Firm
D)

Sears, Roebuck, and Company

121)

Google, an internet search firm, would be classified as:
A)

a manufacturing-sector company
B)

a merchandising-sector company
C)

a service sector company
D)

None of these answers are correct.

122)

Service-sector companies report:
A)

only merchandise inventory
B)

only finished goods inventory
C)

direct materials inventory, work-in-process inventory, and finished goods inventory accounts
D)

no inventory accounts

123)

Manufacturing-sector companies report:
A)

only merchandise inventory
B)

only finished goods inventory
C)

direct materials inventory, work-in-process inventory, and finished goods inventory accounts
D)

no inventory accounts

124)

For a manufacturing company, direct material costs may be included in:
A)

direct materials inventory only
B)

merchandise inventory only
C)

both work-in-process inventory and finished goods inventory
D)

direct materials inventory, work-in-process inventory, and finished goods inventory accounts

125)

For a manufacturing company, direct labor costs may be included in:
A)

direct materials inventory only
B)

merchandise inventory only
C)

both work-in-process inventory and finished goods inventory
D)

direct materials inventory, work-in-process inventory, and finished goods inventory accounts

126)

For a manufacturing company, indirect manufacturing costs may be included in:
A)

direct materials inventory only
B)

merchandise inventory only
C)

both work-in-process inventory and finished goods inventory
D)

direct materials inventory, work-in-process inventory, and finished goods inventory accounts

127)

For a manufacturing-sector company, the cost of factory insurance is classified as a:
A)

direct material cost
B)

direct manufacturing labor cost
C)

manufacturing overhead cost
D)

period cost

128)

For a printing company, the cost of paper is classified as a:
A)

direct material cost
B)

direct manufacturing labor cost
C)

manufacturing overhead cost
D)

period cost

129)

Wages paid to machine operators on an assembly line are classified as a:
A)

direct material cost
B)

direct manufacturing labor cost
C)

manufacturing overhead cost
D)

period cost

130)

Manufacturing overhead costs in an automobile manufacturing plant MOST likely include:
A)

labor costs of the painting department
B)

indirect material costs such as lubricants
C)

sales commissions
D)

steering wheel costs

131)

Manufacturing overhead costs are also referred to as:
A)

indirect manufacturing costs
B)

prime costs
C)

period costs
D)

direct material

132)

Merchandising companies normally report:
A)

only merchandise inventory
B)

only finished goods inventory
C)

direct materials inventory, work-in-process inventory, and finished goods inventory accounts
D)

no inventory accounts

133)

Direct materials inventory would normally include:
A)

direct materials in stock and awaiting use in the manufacturing process
B)

goods partially worked on but not yet fully completed
C)

goods fully completed but not yet sold
D)

products in their original form intended to be sold without changing their basic form

134)

Work-in-process inventory would normally include:
A)

direct materials in stock and awaiting use in the manufacturing process
B)

goods partially worked on but not yet fully completed
C)

goods fully completed but not yet sold
D)

products in their original form intended to be sold without changing their basic form

135)

Finished goods inventory would normally include:
A)

direct materials in stock and awaiting use in the manufacturing process
B)

goods partially worked on but not yet fully completed
C)

goods fully completed but not yet sold
D)

products in their original form intended to be sold without changing their basic form

136)

Merchandise inventory would normally include:
A)

direct materials in stock and awaiting use in the manufacturing process
B)

goods partially worked on but not yet fully completed
C)

goods fully completed but not yet sold
D)

products in their original form intended to be sold without changing their basic form

137)

________ are the acquisition costs of all materials that eventually become part of the cost object and can be traced to the cost object.
A)

Direct manufacturing labor costs
B)

Direct material costs
C)

Indirect manufacturing costs
D)

Manufacturing overhead costs

138)

________ include the compensation of all manufacturing labor that can be traced to the cost object.
A)

Direct manufacturing labor costs
B)

Indirect manufacturing costs
C)

Direct material costs
D)

Manufacturing overhead costs

139)

________ are all manufacturing costs that are related to the cost object but cannot be traced to that cost object.
A)

Direct material costs
B)

Period costs
C)

Indirect manufacturing costs
D)

Direct manufacturing labor costs

140)

The income statement of a manufacturing firm reports:
A)

period costs only
B)

inventoriable costs only
C)

both period and inventoriable costs
D)

period and inventoriable costs but at different times; the reporting varies

141)

The income statement of a service-sector firm reports:
A)

period costs only
B)

inventoriable costs only
C)

both period and inventoriable costs
D)

period and inventoriable costs but at different times; the reporting varies

142)

Manufacturing costs include all of the following EXCEPT:
A)

costs incurred inside the factory
B)

both direct and indirect costs
C)

both variable and fixed costs
D)

both inventoriable and period costs

143)

Inventoriable costs:
A)

include administrative and marketing costs
B)

are expensed in the accounting period in which the products are sold
C)

are particularly useful in management accounting
D)

are also referred to as nonmanufacturing costs
144)

Inventoriable costs are expensed on the income statement:
A)

when direct materials for the product are purchased
B)

after the products are manufactured
C)

when the products are sold
D)

not at any particular time, it varies

145)

Costs that are initially recorded as assets and expensed when sold are called:
A)

period costs
B)

inventoriable costs
C)

variable costs
D)

fixed costs

146)

For merchandising companies, inventoriable costs include:
A)

the cost of the goods themselves
B)

incoming freight costs
C)

insurance costs for the goods
D)

All of these answers are correct.

147)

For manufacturing firms, inventoriable costs include:
A)

plant supervisor salaries
B)

research and development costs
C)

costs of dealing with customers after the sale
D)

distribution costs

148)

A plant manufactures several different products. The wages of the plant supervisor can be classified as a(n):
A)

direct cost
B)

inventoriable cost
C)

variable cost
D)

period cost

149)

The cost of inventory reported on the balance sheet may include all of the following EXCEPT:
A)

customer-service costs
B)

wages of the plant supervisor
C)

depreciation of the factory equipment
D)

the cost of parts used in the manufacturing process

150)

For a computer manufacturer, period costs include the cost of:
A)

the keyboard
B)

labor used for assembly and packaging
C)

distribution
D)

assembly-line equipment

151)

Period costs:
A)

include only fixed costs
B)

seldom influence financial success or failure
C)

include the cost of selling, delivering, and after-sales support for customers
D)

should be treated as an indirect cost rather than as a direct manufacturing cost

152)

Period costs:
A)

are treated as expenses in the period they are incurred
B)

are directly traceable to products
C)

include direct labor
D)

are also referred to as manufacturing overhead costs

153)

Which of the following is NOT a period cost?
A)

marketing costs
B)

general and administrative costs
C)

research and development costs
D)

manufacturing costs

154)

Costs expensed on the income statement in the accounting period incurred are called:
A)

direct costs
B)

indirect costs
C)

period costs
D)

inventoriable costs

155)

Prime costs include:
A)

direct materials and direct manufacturing labor costs
B)

direct manufacturing labor and manufacturing overhead costs
C)

direct materials and manufacturing overhead costs
D)

only direct materials

156)

Conversion costs include:
A)

direct materials and direct manufacturing labor costs
B)

direct manufacturing labor and manufacturing overhead costs
C)

direct materials and manufacturing overhead costs
D)

only direct materials

157)

Total manufacturing costs equal:
A)

direct materials + prime costs
B)

direct materials + conversion costs
C)

direct manufacturing labor costs + prime costs
D)

direct manufacturing labor costs + conversion costs

158)

In the cost classification system used by manufacturing firms, assembly workers’ wages would be included in all of the following EXCEPT:
A)

product cost
B)

prime cost
C)

conversion cost
D)

period cost

159)

In the cost classification system used by manufacturing firms, total manufacturing costs would include all of the following EXCEPT:
A)

direct materials costs and conversion costs
B)

direct materials costs, direct manufacturing labor costs, and manufacturing overhead costs
C)

indirect materials costs, indirect manufacturing labor costs, and manufacturing overhead costs
D)

prime costs and manufacturing overhead costs

160)

Manufacturing overhead costs may include all of the following EXCEPT:
A)

salaries of the plant janitorial staff
B)

labor that can be traced to individual products
C)

wages paid for unproductive time due to machine breakdowns
D)

overtime premiums paid to plant workers

161)

Which of the following formulas determine cost of goods sold in a merchandising entity?
A)

Beginning inventory + Purchases + Ending inventory = Cost of goods sold
B)

Beginning inventory + Purchases – Ending inventory = Costs of goods sold
C)

Beginning inventory – Purchases + Ending inventory = Cost of goods sold
D)

Beginning inventory – Ending inventory – Purchases = Cost of goods sold

162)

Which of the following formulas determine cost of goods sold in a manufacturing entity?
A)

Beginning work-in-process inventory + Cost of goods manufactured – Ending work-in-process inventory = Cost of goods sold
B)

Beginning work-in-process inventory + Cost of goods manufactured + Ending work-in-process inventory = Cost of goods sold
C)

Cost of goods manufactured – Beginning finished goods inventory – Ending finished goods inventory = Cost of goods sold
D)

Cost of goods manufactured + Beginning finished goods inventory – Ending finished goods inventory = Cost of goods sold

163)

Product cost for pricing and product-mix decisions may include all costs EXCEPT:
A)

research and development costs
B)

customer-service costs
C)

marketing costs
D)

design costs
E)

All of the above may be included

164)

Product cost for reimbursement under government contracts may include all costs EXCEPT:
A)

marketing costs
B)

design costs
C)

production costs
D)

research and development costs

165)

Product cost for financial statement purposes may include:
A)

all costs allowed by government agencies
B)

all costs included for pricing and product-mix decisions
C)

production costs
D)

all costs except marketing costs

166)

The following information pertains to the Cannady Corporation:

Beginning work-in-process inventory $ 50,000
Ending work-in-process inventory 48,000
Beginning finished goods inventory 180,000
Ending finished goods inventory 195,000
Cost of goods manufactured 1,220,000

What is cost of goods sold?
A)

$1,235,000
B)

$1,205,000
C)

$1,218,000
D)

$1,222,000

167)

The following information pertains to the Duggan Corporation:

Beginning work-in-process inventory $ 20,000
Ending work-in-process inventory 23,000
Beginning finished goods inventory 36,000
Ending finished goods inventory 34,000
Cost of goods manufactured 246,000

What is cost of goods sold?
A)

$244,000
B)

$248,000
C)

$243,000
D)

$249,000

168)

What is cost of goods manufactured for 20X3?
A)

$230,000
B)

$257,000
C)

$283,000
D)

$355,000

169)

What is gross margin for 20X3?
A)

$283,000
B)

$355,000
C)

$230,000
D)

$257,000

170)

What is operating income for 20X3?
A)

$85,000
B)

$112,000
C)

$62,000
D)

$230,000

171)

What is cost of goods manufactured for 20X5?
A)

$257,000
B)

$350,000
C)

$243,000
D)

$250,000

172)

What is gross margin for 20X5?
A)

$243,000
B)

$527,000
C)

$357,000
D)

$350,000

173)

What is operating income for 20X5?
A)

$230,000
B)

$123,000
C)

$107,000
D)

$157,000

174)

What are the variable costs per unit associated with Product ICT101?
A)

$18
B)

$22
C)

$88
D)

$92

175)

What are the fixed costs per unit associated with Product ICT101?
A)

$102
B)

$48
C)

$52
D)

$32

176)

What are the inventoriable costs per unit associated with Product ICT101?
A)

$120
B)

$140
C)

$50
D)

$88

177)

What are the period costs per unit associated with Product ICT101?
A)

$4
B)

$16
C)

$20
D)

$52

178)

What are the variable costs per unit associated with Product ORD203?
A)

$60
B)

$83
C)

$66
D)

$48

179)

What are the fixed costs per unit associated with Product ORD203?
A)

$23
B)

$32
C)

$35
D)

$44

180)

What are the inventoriable costs per unit associated with Product ORD203?
A)

$60
B)

$66
C)

$48
D)

$83

181)

What are the period costs per unit associated with Product ORD203?
A)

$15
B)

$6
C)

$9
D)

$27

182)

For last year, Wampum Enterprises reported revenues of $420,000, cost of goods sold of $108,000, cost of goods manufactured of $101,000, and total operating costs of $70,000. Operating income for that year was:
A)

$319,000
B)

$312,000
C)

$249,000
D)

$242,000

183)

For last year, Wampum Enterprises reported revenues of $420,000, cost of goods sold of $108,000, cost of goods manufactured of $101,000, and total operating costs of $70,000. Gross margin for last year was:
A)

$319,000
B)

$312,000
C)

$249,000
D)

$242,000

184)

For last year, Lewisburn Manufacturing reported the following:

Revenue $420,000
Beginning inventory of direct materials, January 1 22,000
Purchases of direct materials 146,000
Ending inventory of direct materials, December 31 16,000
Direct manufacturing labor 18,000
Indirect manufacturing costs 40,000
Beginning inventory of finished goods, January 1 35,000
Cost of goods manufactured 104,000
Ending inventory of finished goods, December 31 36,000
Operating costs 140,000

What was Lewisburn’s cost of goods sold?
A)

$103,000
B)

$152,000
C)

$268,000
D)

$317,000

185)

For last year, Lewisburn Manufacturing reported the following:

Revenue $420,000
Beginning inventory of direct materials, January 1 22,000
Purchases of direct materials 146,000
Ending inventory of direct materials, December 31 16,000
Direct manufacturing labor 18,000
Indirect manufacturing costs 40,000
Beginning inventory of finished goods, January 1 35,000
Cost of goods manufactured 104,000
Ending inventory of finished goods, December 31 36,000
Operating costs 140,000

What was Lewisburn’s gross margin (or gross profit)?
A)

$103,000
B)

$152,000
C)

$268,000
D)

$317,000

186)

For last year, Lewisburn Manufacturing reported the following:

Revenue $420,000
Beginning inventory of direct materials, January 1 22,000
Purchases of direct materials 146,000
Ending inventory of direct materials, December 31 16,000
Direct manufacturing labor 18,000
Indirect manufacturing costs 40,000
Beginning inventory of finished goods, January 1 35,000
Cost of goods manufactured 104,000
Ending inventory of finished goods, December 31 36,000
Operating costs 140,000

What was Lewisburn’s operating income?
A)

$76,000
B)

$128,000
C)

$177,000
D)

$280,000

187)

For last year, Lewisburn Manufacturing reported the following:

Revenue $420,000
Beginning inventory of direct materials, January 1 22,000
Purchases of direct materials 146,000
Ending inventory of direct materials, December 31 16,000
Direct manufacturing labor 18,000
Indirect manufacturing costs 40,000
Beginning inventory of finished goods, January 1 35,000
Cost of goods manufactured 104,000
Ending inventory of finished goods, December 31 36,000
Operating costs 140,000

How much of the above would be considered period costs for Lewisburn Manufacturing?
A)

$104,000
B)

$140,000
C)

$246,000
D)

$390,000

188)

Product costs may refer to:
A)

inventoriable costs for external reporting
B)

design costs plus manufacturing costs for government contracts
C)

all costs incurred along the value chain for pricing decisions
D)

All of these answers are correct.

189)

Product costs used for pricing and product-mix decisions generally include:
A)

manufacturing costs only
B)

design costs plus manufacturing costs
C)

all costs incurred along the value chain
D)

distribution costs only

190)

Product costs used for government contracts generally include:
A)

manufacturing costs only
B)

design costs plus manufacturing costs
C)

all costs incurred along the value chain
D)

distribution costs only

191)

Product costs used for external reporting generally include:
A)

manufacturing costs only
B)

design costs plus manufacturing costs
C)

all costs incurred along the value chain
D)

All of these answers are correct.

192)

Inventoriable costs for external reporting purposes are also called:
A)

product costs
B)

period costs
C)

variable costs
D)

direct manufacturing costs

193)

For external reporting:
A)

costs are classified as either inventoriable or period costs
B)

costs reflect current values
C)

there are no prescribed rules since no one is exactly sure how investors and creditors will use these numbers
D)

costs include amounts that reflect both current and future benefits

194)

Which of the following statements is FALSE?
A)

Product costs and inventoriable costs are interchangeable terms.
B)

Inventoriable costs are important for GAAP.
C)

Inventoriable costs are a special case of product costs.
D)

“Product costs” refers to the particular costs of a product for the purpose at hand.

195)

Debated items that some companies include as direct manufacturing labor include:
A)

fringe benefits
B)

vacation pay
C)

training time
D)

All of these answers are correct.

196)

Brenda Hicks is paid $10 an hour for straight-time and $15 an hour for overtime. One week she worked 42 hours, which included 2 hours of overtime. Compensation would be reported as:
A)

$400 of direct labor and $30 of manufacturing overhead
B)

$400 of direct labor and $0 of manufacturing overhead
C)

$420 of direct labor and $10 of manufacturing overhead
D)

$430 of direct labor and $0 of manufacturing overhead

197)

Rodney Worsham is paid $10 an hour for straight-time and $15 an hour for overtime. One week he worked 45 hours, which included 5 hours of overtime, and 3 hours of idle time caused by material shortages. Compensation would be reported as:
A)

$370 of direct labor and $105 of manufacturing overhead
B)

$420 of direct labor and $55 of manufacturing overhead
C)

$450 of direct labor and $25 of manufacturing overhead
D)

$445 of direct labor and $30 of manufacturing overhead

198)

Joseph Davis worked 44 hours last week for Breakgood Manufacturing. Of the 44 hours 4 hours were considered overtime, and also Davis was idle for 5 of the 44 hours due to an equipment malfunction. Davis makes $20 per hour and is paid $30 an hour (time and a half) for overtime. Davis’ total compensation for that week would be ________, and assuming Breakgood charges overtime premium and idle time to indirect labor, the amount of this compensation credited to indirect labor would be ________.
A)

$840; $40
B)

$840; $140
C)

$920; $40
D)

$920; $140

199)

When making decisions:
A)

it is best to use average costs
B)

it is best to use unit costs
C)

it is best to use total costs rather than unit costs
D)

All of these types of costs can be used for decision making; it varies depending on the decision required.

200)

Lucas Manufacturing has three cost objects that it uses to accumulate costs for its manufacturing plants. They are:

Cost object #1: The physical buildings and equipment
Cost object #2: The use of buildings and equipment
Cost object #3: The availability and use of manufacturing labor

The following manufacturing overhead cost categories are found in the accounting records:
a. Depreciation on buildings and equipment
b. Lubricants for machines
c. Property insurance
d. Supervisors’ salaries
e. Fringe benefits
f. Property taxes
g. Utilities

Required:

Assign each of the above costs to the most appropriate cost object.

201)

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

Cost Cost Nonmanu-
Item Tracing Allocation facturing

Carpenter wages ________ ________ ________
Depreciation – office building ________ ________ ________
Glue for assembly ________ ________ ________
Lathe department supervisor ________ ________ ________
Lathe depreciation ________ ________ ________
Lathe maintenance ________ ________ ________
Lathe operator wages ________ ________ ________
Lumber ________ ________ ________
Samples for trade shows ________ ________ ________
Metal brackets for drawers ________ ________ ________
Factory washroom supplies ________ ________ ________

202)

Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants.

Required:

a. Classify each of the following costs as either direct or indirect with respect to each patient.
b. Classify each of the following costs as either fixed or variable with respect to hospital costs per day.

Direct Indirect Fixed Variable

Electronic monitoring ________ ________ ________ ________
Meals for patients ________ ________ ________ ________
Nurses’ salaries ________ ________ ________ ________
Parking maintenance ________ ________ ________ ________
Security ________ ________ ________ ________

203)

Springfield Manufacturing produces electronic storage devices, and uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labor, and indirect manufacturing costs. Total indirect manufacturing costs for January were $300 million, and were allocated to each product on the basis of direct manufacturing labor costs of each line. Summary data (in millions) for January for the most popular electronic storage device, the Big Bertha, was:

Big Bertha
Direct manufacturing costs $9,000,000
Direct manufacturing labor costs $3,000,000
Indirect manufacturing costs $8,500,000
Units produced 40,000

Required:

a. Compute the manufacturing cost per unit for each product produced in January.

b. Suppose production will be reduced to 30,000 units in February. Speculate as to whether the unit costs in February will most likely be higher or lower than unit costs in January; it is not necessary to calculate the exact February unit cost. Briefly explain your reasoning.

204)

Whippany manufacturing wants to estimate costs for each product they produce at its Troy plant. The Troy plant produces three products at this plant, and runs two flexible assembly lines. Each assembly line can produce all three products.

Required:

a. Classify each of the following costs as either direct or indirect for each product.

b. Classify each of the following costs as either fixed or variable with respect to the number of units produced of each product.

Direct Indirect Fixed Variable

Assembly line labor wages ________ ________ ________ ________
Plant manager’s wages ________ ________ ________ ________
Depreciation on the assembly
line equipment ________ ________ ________ ________
Component parts for the product ________ ________ ________ ________
Wages of security personnel for the
factory ________ ________ ________ ________

205)

The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column. That is, they do not match.

Function Representative Cost Driver
1. Purchasing A. Number of employees
2. Billing B. Number of shipments
3. Shipping C. Number of customers
4. Computer Support D. Number of invoices
5. Personnel E. Number of desktop computers
6. Customer Service F. Number of purchase orders

Required:

Match each business function with its representative cost driver.

Function Insert letter of appropriate driver (A through F)
1. Purchasing
2. Billing
3. Shipping
4. Computer Support
5. Personnel
6. Customer Service

206)

Combs, Inc., reports the following information for September sales:

Sales $15,000
Variable costs 3,000
Fixed costs 4,000
Operating income $ 8,000

Required:

If sales double in October, what is the projected operating income?

207)

Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:

Direct materials $200
Direct manufacturing labor 30
Variable manufacturing overhead 60
Fixed manufacturing overhead 40
Total manufacturing costs $330

The plant has capacity for 2,000 axles.

Required:

a. What is the total cost of producing 1,000 axles?
b. What is the total cost of producing 1,500 axles?
c. What is the per unit cost when producing 1,500 axles?

208)

The following information pertains to Ball Company:

Manufacturing costs $2,400,000
Units manufactured 40,000
Beginning inventory 0 units

39,800 units are sold during the year for $100 per unit.

Required:

a. What is the average manufacturing cost per unit?
b. What is the amount of ending finished goods inventory?
c. What is the amount of gross margin?

209)

During 2009, Favata Corporation incurred manufacturing expenses of $20,000,000 to produce 400,000 finished units. At year-end, it was determined that 370,000 units were sold while 30,000 units remained in ending inventory.

Required:

a. What is the cost of producing one unit?
b. What is the amount that will be reported on the income statement for cost of goods sold?
c. What is the amount that will be reported on the balance sheet for ending inventory?

210)

Evans Inc., had the following activities during 20X5:

Direct materials:
Beginning inventory $ 40,000
Purchases 123,200
Ending inventory 20,800
Direct manufacturing labor 32,000
Manufacturing overhead 24,000
Beginning work-in-process inventory 1,600
Ending work-in-process inventory 8,000
Beginning finished goods inventory 48,000
Ending finished goods inventory 32,000

Required:

a. What is the cost of direct materials used during 20X5?
b. What is cost of goods manufactured for 20X5?
c. What is cost of goods sold for 20X5?
d. What amount of prime costs was added to production during 20X5?
e. What amount of conversion costs was added to production during 20X5?

211)

Helmer Sporting Goods Company manufactured 100,000 units in 20X5 and reported the following costs:

Sandpaper $ 32,000 Leasing costs-plant $ 384,000
Materials handling 320,000 Depreciation-equipment 224,000
Coolants & lubricants 22,400 Property taxes-equipment 32,000
Indirect manufacturing labor 275,200 Fire insurance-equipment 16,000
Direct manufacturing labor 2,176,000 Direct material purchases 3,136,000
Direct materials, 1/1/X5 384,000 Direct materials, 12/31/X5 275,200
Finished goods, 1/1/X5 672,000 Sales revenue 12,800,000
Finished goods, 12/31/X5 1,280,000 Sales commissions 640,000
Work-in-process, 1/1/X5 96,000 Sales salaries 576,000
Work-in-process, 12/31/X5 64,000 Advertising costs 480,000
Administration costs 800,000

Required:

a. What is the amount of direct materials used during 20X5?
b. What manufacturing costs were added to WIP during 20X5?
c. What is cost of goods manufactured for 20X5?
d. What is cost of goods sold for 20X5?

212)

Messinger Manufacturing Company had the following account balances for the quarter ending March 31, unless otherwise noted:

Work-in-process inventory (January 1) $ 140,400
Work-in-process inventory (March 31) 171,000
Finished goods inventory (January 1) 540,000
Finished goods inventory (March 31) 510,000
Direct materials used 378,000
Indirect materials used 84,000
Direct manufacturing labor 480,000
Indirect manufacturing labor 186,000
Property taxes on manufacturing plant building 28,800
Salespersons’ company vehicle costs 12,000
Depreciation of manufacturing equipment 264,000
Depreciation of office equipment 123,600
Miscellaneous plant overhead 135,000
Plant utilities 92,400
General office expenses 305,400
Marketing distribution costs 30,000

Required:

a. Prepare a cost of goods manufactured schedule for the quarter.
b. Prepare a cost of goods sold schedule for the quarter.

213)

Using the following information find the unknown amounts. Assume each set of information is an independent case.

a. Merchandise Inventory Purchases $420,000
Cost of goods sold 446,000
Beginning balance 82,000
Ending balance ?

b. Direct Materials Beginning balance $ 14,000
Ending balance 28,000
Purchases 96,000
Direct materials used ?

c. Work-in-process Inventory Ending balance $ 44,000
Cost of goods manufactured 42,000
Beginning balance 16,000
Current manufacturing costs ?

d. Finished Goods Inventory Cost of goods manufactured $124,000
Ending balance 40,000
Cost of goods sold 122,000
Beginning balance ?

214)

Each of the following items pertains to one of these companies: Bedell Electronics (a manufacturing company), Gregory Food Retailers (a merchandising company), and Larson Real Estate (a service sector company). Classify each item as either inventoriable (I) costs or period (P) costs.

inventoriable (I) costs or period (P) costs
a. Salary of Bedell Electronics president
b. Depreciation on Bedell Electronics assembly equipment.
c. Salaries of Bedell’s assembly line workers
d. Purchase of frozen food for sale to customers by Gregory Food Retailers
e. Salaries of frozen food personnel at Gregory Food Retailing
f. Depreciation on freezers at Gregory Food Retailing
g. Salary of a receptionist at Larson Real Estate
h. Depreciation on a computer at Larson Real Estate
i. Salary of a real estate agent at Larson Real Estate

215)

On the assembly floor, Cynthia Evans is paid $20 an hour for straight-time and $30 an hour for overtime. One week she worked 43 hours, which included 3 hours of overtime.

Required:

a. What is Cynthia’s total compensation for the week?
b. What amount of compensation would be reported as direct manufacturing labor?
c. What amount of compensation would be reported as manufacturing overhead?

216)

In the manufacturing plant, Leslie Grant is paid $20 an hour for straight-time and $30 an hour for overtime. One week she worked 46 hours, which included 6 hours of overtime, and 4 hours of idle time caused by material shortages.

Required:

a. What is Leslie’s total compensation for the week?
b. What amount of compensation would be reported as direct manufacturing labor?
c. What amount of compensation would be reported as manufacturing overhead?

217)

Bosely Manufacturing Co. wants to classify costs for the product produced at its facility. The company produces only one product at the facility and operates continually. The cost categories are:

Product cost
Prime cost
Conversion cost
Period cost

The following costs are found in the accounting records:

a. Quality control inspection wages
b. Raw material purchases
c. Sales commissions
d. Factory depreciation
e. Assembly wages

Required:

Assign each of the above costs to the most appropriate cost categories.

218)

What is the meaning of the term “cost object”? Give an example of a cost object that would be used in a manufacturing company, a merchandising company, and a service sector company?

219)

Why is it possible that a raw material such as glue might be considered as an indirect material for one furniture manufacturer and as a direct material for another furniture manufacture?

220)

What are the differences between direct costs and indirect costs? Give an example of each.

221)

Describe a variable cost. Describe a fixed cost. Explain why the distinction between variable and fixed costs is important in cost accounting.

222)

Explain the difference between an inventoriable cost and a period cost. What potential problems does an inaccurate classification of product and period costs cause?

223)

When should the overtime premium of direct manufacturing labor be considered an indirect manufacturing cost? A direct manufacturing cost?

224)

In determining product cost, what concerns does a manufacturing firm have when contracting with a government agency?

Chapter 3

Cost-Volume-Profit Analysis

1)

To perform cost-volume-profit analysis, a company must be able to separate costs into fixed and variable components.

2)

Cost-volume-profit analysis may be used for multi-product analysis when the proportion of different products remains constant.

3)

It is assumed in CVP analysis that the unit selling price, unit variable costs, and unit fixed costs are known and constant.

4)

In CVP analysis, the number of output units is the only revenue driver.

5)

Many companies find even the simplest CVP analysis helps with strategic and long-range planning.

6)

In CVP analysis, total costs can be separated into a fixed component that does not vary with output and a component that is variable with output level.

7)

In CVP analysis, variable costs include direct variable costs, but do not include indirect variable costs.

8)

In CVP analysis, an assumption is made that the total revenues are linear with respect to output units, but that total costs are non-linear with respect to output units.

9)

A revenue driver is defined as a variable that causes changes in prices.

10)

If the selling price per unit is $20 and the contribution margin percentage is 30%, then the variable cost per unit must be $6.

11)

Total revenues less total fixed costs equal the contribution margin.

12)

Gross margin is reported on the contribution income statement.

13)

If the selling price per unit of a product is $30, variable costs per unit are $20, and total fixed costs are $10,000 and a company sells 5,000 units, operating income would be $40,000.

14)

The selling price per unit is $30, variable cost per unit $20, and fixed cost per unit is $3. When this company operates above the breakeven point, the sale of one more unit will increase net income by $7.

15)

A company with sales of $100,000, variable costs of $70,000, and fixed costs of $50,000 will reach its breakeven point if sales are increased by $20,000.

16)

Breakeven point is not a good planning tool since the goal of business is to make a profit.

17)

Breakeven point is that quantity of output where total revenues equal total costs.

18)

In the graph method of CVP analysis, the breakeven point is the (X-axis) quantity of units sold for which the total revenues line crosses the total costs line.

19)

In the graph method of CVP analysis, the total revenue line can be calculated by determining the total revenue at only one real output level because the starting point of the line is always the intersection of the X and Y axes.

20)

A profit-volume graph shows the impact on operating income from changes in the output level.

21)

If the selling price per unit of a product is $50, variable costs per unit are $40, and total fixed costs are $50,000, a company must sell 6,000 units to make a target operating income of $10,000.

22)

An increase in the tax rate will increase the breakeven point.

23)

When making net income evaluations, CVP calculations for target income must be stated in terms of target operating income instead of target net income.

24)

If operating income is $70,000 and the income tax rate is 30%, then net income will be $49,000.

25)

If planned net income is $21,000 and the tax rate is 30%, then planned operating income would be $27,300.

26)

Sensitivity analysis is a “what-if” technique that managers use to examine how a result will change if the originally predicted data are not achieved or if an underlying assumption changes.

27)

Margin of safety measures the difference between budgeted revenues and breakeven revenues.

28)

If a company’s breakeven revenue is $100 and its budgeted revenue is $125, then its margin of safety percentage is 25%.

29)

Sensitivity analysis helps to evaluate the risk associated with decisions.

30)

If contribution margin decreases by $1 per unit, then operating profits will increase by $1 per unit.

31)

If variable costs per unit increase, then the breakeven point will decrease.

32)

A planned increase in advertising would be considered an increase in fixed costs in CVP analysis.

33)

A planned decrease in selling price would be expected to cause an increase in the quantity sold.

34)

Companies with a greater proportion of fixed costs have a greater risk of loss than companies with a greater proportion of variable costs.

35)

The degree of operating leverage at a specific level of sales helps the managers calculate the effect that potential changes in sales will have on operating income.

36)

If a company increases fixed costs, then the breakeven point will be lower.

37)

Companies that are substituting fixed costs for variable costs receive a greater per unit return above the breakeven point.

38)

A company with a high degree of operating leverage is at lesser risk during downturns in the economy.

39)

Whether the purchase cost of a machine is treated as fixed or variable depends heavily on the time horizon being considered.

40)

If a company has a degree of operating leverage of 2.0, that means a 20% increase in sales will result in a 40% increase in variable costs.

41)

When a company has at least some fixed costs, the degree of operating leverage is different at different levels of sales.

42)

Passenger-miles are a potential measure of output for the airline industry.

43)

Pounds of yeast used by a bake shop is a potential measure of output for the bakery industry.

44)

In multiproduct situations when sales mix shifts toward the product with the lowest contribution margin, the breakeven quantity will decrease.

45)

In multiproduct situations when sales mix shifts toward the product with the highest contribution margin, operating income will be higher.

46)

To calculate the breakeven point in a multi-product situation, one must assume that the sales mix of the various products remains constant.

47)

If a company’s sales mix is 2 units of product A for every 3 units of product B, and the company sells 1,000 units in total of both products, only 200 units of product A will be sold.

48)

Barbies Beer Emporium sells beer and ale in both pint and quart sizes. If Barbies sells twice as many pints as it sells quarts, and sells 1,200 items total, it will sell 400 quarts of ale.

49)

There is no unique breakeven point when there are multiple cost drivers.

50)

When there are multiple cost drivers the simple CVP formula of Q = (FC + OI)/CMU can still be used.

51)

Service sector companies will never report gross margin on an income statement.

52)

For merchandising firms, contribution margin will always be a lesser amount than gross margin.

53)

Contribution margin and gross margin are terms that can be used interchangeably.

54)

Gross Margin will always be greater than contribution margin.

55)

If Johnson’s Manufacturing presented a Financial Accounting Income Statement emphasizing gross margin showing operating income of $18,000, a Contribution Income Statement emphasizing contribution margin would show a different operating income.

56)

An expected value is the weighted average of the outcomes, with the probability of each outcome serving as the weight.

57)

Cost-volume-profit analysis is used PRIMARILY by management:
A)

as a planning tool
B)

for control purposes
C)

to prepare external financial statements
D)

to attain accurate financial results

58)

One of the first steps to take when using CVP analysis to help make decisions is:
A)

finding out where the total costs line intersects with the total revenues line on a graph.
B)

identifying which costs are variable and which costs are fixed.
C)

calculation of the degree of operating leverage for the company.
D)

estimating how many products will have to be sold to make a decent profit.

59)

Cost-volume-profit analysis assumes all of the following EXCEPT:
A)

all costs are variable or fixed
B)

units manufactured equal units sold
C)

total variable costs remain the same over the relevant range
D)

total fixed costs remain the same over the relevant range

60)

Which of the following items is NOT an assumption of CVP analysis?
A)

Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
B)

When graphed, total costs curve upward.
C)

The unit-selling price is known and constant.
D)

All revenues and costs can be added and compared without taking into account the time value of money.

61)

Which of the following items is NOT an assumption of CVP analysis?
A)

Costs may be separated into separate fixed and variable components.
B)

Total revenues and total costs are linear in relation to output units.
C)

Unit selling price, unit variable costs, and unit fixed costs are known and remain constant.
D)

Proportion of different products will remain constant when multiple products are sold.

62)

A revenue driver is defined as:
A)

any factor that affects costs and revenues
B)

any factor that affects revenues
C)

only factors that can influence a change in selling price
D)

only factors that can influence a change in demand

63)

Operating income calculations use:
A)

net income
B)

income tax expense
C)

cost of goods sold and operating costs
D)

nonoperating revenues and nonoperating expenses

64)

Which of the following statements about net income (NI) is TRUE?
A)

NI = operating income plus nonoperating revenue.
B)

NI = operating income plus operating costs.
C)

NI = operating income less income taxes.
D)

NI = operating income less cost of goods sold.

65)

Which of the following is true about the assumptions underlying basic CVP analysis?
A)

Only selling price is known and constant.
B)

Only selling price and variable cost per unit are known and constant.
C)

Only selling price, variable cost per unit, and total fixed costs are known and constant.
D)

Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are known and constant.

66)

The contribution income statement:
A)

reports gross margin
B)

is allowed for external reporting to shareholders
C)

categorizes costs as either direct or indirect
D)

can be used to predict future profits at different levels of activity

67)

Contribution margin equals:
A)

revenues minus period costs
B)

revenues minus product costs
C)

revenues minus variable costs
D)

revenues minus fixed costs

68)

The selling price per unit less the variable cost per unit is the:
A)

fixed cost per unit
B)

gross margin
C)

margin of safety
D)

contribution margin per unit

Answer the following questions using the information below:

Kaiser’s Kraft Korner sells a single product. 7,000 units were sold resulting in $70,000 of sales revenue, $28,000 of variable costs, and $12,000 of fixed costs.

69)

Contribution margin per unit is:
A)

$4.00
B)

$4.29
C)

$6.00
D)

None of these answers are correct.

70)

Breakeven point in units is:
A)

2,000 units
B)

3,000 units
C)

5,000 units
D)

None of these answers are correct.

71)

The number of units that must be sold to achieve $60,000 of operating income is:
A)

10,000 units
B)

11,666 units
C)

12,000 units
D)

None of these answers are correct.

72)

If sales increase by $25,000, operating income will increase by:
A)

$10,000
B)

$15,000
C)

$22,200
D)

None of these answers are correct.

Answer the following questions using the information below:

Holly’s Ham, Inc. sells hams during the major holiday seasons. During the current year 11,000 hams were sold resulting in $220,000 of sales revenue, $55,000 of variable costs, and $24,000 of fixed costs.

73)

Contribution margin per ham is:
A)

$5.00
B)

$15.00
C)

$20.00
D)

None of these answers are correct.

74)

Breakeven point in units is:
A)

1,000 hams
B)

1,200 hams
C)

1,600 hams
D)

None of these answers are correct.

75)

The number of hams that must be sold to achieve $75,000 of operating income is:
A)

6,600 hams
B)

7,500 hams
C)

8,400 hams
D)

None of these answers are correct.

76)

If sales increase by $40,000, operating income will increase by:
A)

$10,000
B)

$20,000
C)

$30,000
D)

None of these answers are correct.

77)

Schuppener Company sells its only product for $18 per unit, variable production costs are $6 per unit, and selling and administrative costs are $3 per unit. Fixed costs for 10,000 units are $10,000. The contribution margin is:
A)

$12 per unit
B)

$9 per unit
C)

$11 per unit
D)

$8 per unit

78)

The contribution income statement highlights:
A)

gross margin
B)

products costs and period costs
C)

different product lines
D)

variable and fixed costs

79)

Fixed costs equal $12,000, unit contribution margin equals $20, and the number of units sold equal 1,600. Operating income is:
A)

$12,000
B)

$20,000
C)

$32,000
D)

$40,000

80)

If selling price per unit is $30, variable costs per unit are $20, total fixed costs are $10,000, the tax rate is 30%, and the company sells 5,000 units, net income is:
A)

$12,000
B)

$14,000
C)

$28,000
D)

$40,000

81)

At the breakeven point of 200 units, variable costs total $400 and fixed costs total $600. The 201st unit sold will contribute ________ to profits.
A)

$1
B)

$2
C)

$3
D)

$5

82)

The breakeven point is the activity level where:
A)

revenues equal fixed costs
B)

revenues equal variable costs
C)

contribution margin equals variable costs
D)

revenues equal the sum of variable and fixed costs

83)

Breakeven point is:
A)

total costs divided by variable costs per unit
B)

contribution margin per unit divided by revenue per unit
C)

fixed costs divided by contribution margin per unit
D)

the sum of fixed and variable costs divided by contribution margin per unit

84)

Sales total $200,000 when variable costs total $150,000 and fixed costs total $30,000. The breakeven point in sales dollars is:
A)

$200,000
B)

$120,000
C)

$ 40,000
D)

$ 30,000

85)

The breakeven point in CVP analysis is defined as:
A)

when fixed costs equal total revenues
B)

fixed costs divided by the contribution margin per unit
C)

revenues less variable costs equal operating income
D)

when the contribution margin percentage equals total revenues divided by variable costs

86)

Which of the following statements about determining the breakeven point is FALSE?
A)

Operating income is equal to zero.
B)

Contribution margin – fixed costs is equal to zero.
C)

Revenues equal fixed costs plus variable costs.
D)

Breakeven revenues equal fixed costs divided by the variable cost per unit.

87)

What is the breakeven point in units, assuming a product’s selling price is $100, fixed costs are $8,000, unit variable costs are $20, and operating income is $32,000?
A)

100 units
B)

300 units
C)

400 units
D)

500 units

88)

If unit outputs exceed the breakeven point:
A)

there is a loss
B)

total sales revenue exceeds total costs
C)

there is a profit
D)

Both total sales revenue exceeds total costs and there is a profit.

89)

How many units would have to be sold to yield a target operating income of $22,000, assuming variable costs are $15 per unit, total fixed costs are $2,000, and the unit selling price is $20?
A)

4,800 units
B)

4,400 units
C)

4,000 units
D)

3,600 units

90)

If the breakeven point is 100 units and each unit sells for $50, then:
A)

selling 125 units will result in a profit
B)

sales of $4,000 will result in a loss
C)

sales of $5,000 will result in zero profit
D)

All of these answers are correct.

91)

If breakeven point is 100 units, each unit sells for $30, and fixed costs are $1,000, then on a graph the:
A)

total revenue line and the total cost line will intersect at $3,000 of revenue
B)

total cost line will be zero at zero units sold
C)

revenue line will start at $1,000
D)

All of these answers are correct.

92)

When fixed costs are $100,000 and variable costs are 20% of the selling price, then breakeven sales are:
A)

$100,000
B)

$125,000
C)

$500,000
D)

indeterminable

Answer the following questions using the information below:

Ruben intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $150 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,000 in advertising costs.

93)

What is the contribution margin per ticket package?
A)

$50
B)

$100
C)

$150
D)

$200

94)

How many ticket packages will Ruben need to sell to break even?
A)

34 packages
B)

50 packages
C)

100 packages
D)

150 packages

95)

How many ticket packages will Ruben need to sell in order to achieve $60,000 of operating income?
A)

367 packages
B)

434 packages
C)

1,100 packages
D)

1,300 packages

96)

For every $25,000 of ticket packages sold, operating income will increase by:
A)

$6,250
B)

$12,500
C)

$18,750
D)

an indeterminable amount

Answer the following questions using the information below:

Northenscold Company sells several products. Information of average revenue and costs is as follows:

Selling price per unit $20.00
Variable costs per unit:
Direct material $4.00
Direct manufacturing labor $1.60
Manufacturing overhead $0.40
Selling costs $2.00
Annual fixed costs $96,000

97)

The contribution margin per unit is:
A)

$6
B)

$8
C)

$12
D)

$14

98)

The number of units that Northenscold’s must sell each year to break even is:
A)

8,000 units
B)

12,000 units
C)

16,000 units
D)

indeterminable

99)

The number of units that Northenscold’s must sell annually to make a profit of $144,000 is:
A)

12,000 units
B)

18,000 units
C)

20,000 units
D)

30,000 units

100)

All of the following are assumed in the above analysis EXCEPT:
A)

a constant product mix
B)

fixed costs increase when activity increases
C)

cost and revenue relationships are reflected accurately
D)

all costs can be classified as either fixed or variable

Answer the following questions using the information below:

Franscioso Company sells several products. Information of average revenue and costs is as follows:

Selling price per unit $28.50
Variable costs per unit:
Direct material $5.25
Direct manufacturing labor $1.15
Manufacturing overhead $0.25
Selling costs $1.85
Annual fixed costs $110,000

101)

The contribution margin per unit is:
A)

$15
B)

$20
C)

$22
D)

$125

102)

The number of units that Franscioso must sell each year to break even is:
A)

1,000 units
B)

4,000 units
C)

5,500 units
D)

indeterminable

103)

The number of units that Franscioso must sell annually to make a profit of $90,000 is:
A)

10,000 units
B)

12,000 units
C)

15,000 units
D)

20,000 units

104)

All of the following are assumed in the above analysis EXCEPT:
A)

a constant product mix
B)

all costs can be classified as either fixed or variable
C)

cost and revenue relationships are reflected accurately
D)

per unit variable costs increase when activity increases

Answer the following questions using the information below:

The following information is for Nichols Company:

Selling price $150 per unit
Variable costs $90 per unit
Total fixed costs $300,000

105)

The number of units that Nichols Company must sell to reach targeted operating income of $90,000 is:
A)

5,000 units
B)

6,500 units
C)

3,334 units
D)

4,334 units

106)

If targeted operating income is $120,000, then targeted sales revenue is:
A)

$1,050,000
B)

$700,000
C)

$500,000
D)

$750,000

Answer the following questions using the information below:

Stephanie’s Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000.

107)

What is the Bridal Shoppe’s operating income when 200 dresses are sold?
A)

$30,000
B)

$80,000
C)

$200,000
D)

$100,000

108)

How many dresses are sold when operating income is zero?
A)

225 dresses
B)

150 dresses
C)

100 dresses
D)

90 dresses

109)

How many dresses must the Bridal Shoppe sell to yield after-tax net income of $18,000, assuming the tax rate is 40%?
A)

200 dresses
B)

170 dresses
C)

150 dresses
D)

145 dresses

Answer the following questions using the information below:

Assume the following cost information for Fernandez Company:

Selling price $120 per unit
Variable costs $80 per unit
Total fixed costs $80,000
Tax rate 40%

110)

What minimum volume of sales dollars is required to earn an aftertax net income of $30,000?
A)

$465,000
B)

$330,000
C)

$390,000
D)

$165,000

111)

What is the number of units that must be sold to earn an after-tax net income of $42,000?
A)

3,750 units
B)

4,625 units
C)

3,050 units
D)

1,875 units

112)

In CVP analysis, focusing on target net income rather than operating income:
A)

will increase the breakeven point
B)

will decrease the breakeven point
C)

will not change the breakeven point
D)

does not allow calculation of breakeven point

113)

To determine the effect of income tax on a decision, managers should evaluate:
A)

target operating income
B)

contribution margin
C)

target net income
D)

selling price

114)

If the tax rate is t, it is possible to calculate planned operating income by:
A)

dividing net operating income by t
B)

dividing net operating income by 1- t
C)

multiplying net operating income by t
D)

multiplying net operating income by 1- t

115)

If Springfield Realtor plans an operating income of $105,000 and the tax rate is 30%, then Springfield’s planned net income should be:
A)

$31,500
B)

$73,500
C)

$136,500
D)

$178,500

116)

Assume only the specified parameters change in a cost-volume-profit analysis. If the contribution margin increases by $2 per unit, then operating profits will:
A)

also increase by $2 per unit
B)

increase by less than $2 per unit
C)

decrease by $2 per unit
D)

be indeterminable

117)

The Tessmer Company has fixed costs of $400,000 and variable costs are 75% of the selling price. To realize profits of $100,000 from sales of 500,000 units, the selling price per unit:
A)

must be $1.00
B)

must be $1.33
C)

must be $4.00
D)

is indeterminable

118)

The breakeven point decreases if:
A)

the variable cost per unit increases
B)

total fixed costs decrease
C)

the contribution margin per unit decreases
D)

the selling price per unit decreases

119)

(CPA adapted, November 1992) The strategy MOST likely to reduce the breakeven point would be to:
A)

increase both the fixed costs and the contribution margin
B)

decrease both the fixed costs and the contribution margin
C)

decrease the fixed costs and increase the contribution margin
D)

increase the fixed costs and decrease the contribution margin

120)

________ is the process of varying key estimates to identify those estimates that are the most critical to a decision.
A)

The graph method
B)

A sensitivity analysis
C)

The degree of operating leverage
D)

Sales mix

121)

Assume only the specified parameters change in a CVP analysis. The contribution margin percentage increases when:
A)

total fixed costs increase
B)

total fixed costs decrease
C)

variable costs per unit increase
D)

variable costs per unit decrease

122)

Which of the following will increase a company’s breakeven point?
A)

increasing variable cost per unit
B)

increasing contribution margin per unit
C)

reducing its total fixed costs
D)

increasing the selling price per unit

123)

Assume there is a reduction in the selling price and all other CVP parameters remain constant. This change will:
A)

increase contribution margin
B)

reduce fixed costs
C)

increase variable costs
D)

reduce operating income

124)

Assume there is an increase in advertising expenditures and all other CVP parameters remain constant. This change will:
A)

reduce operating income
B)

reduce contribution margin
C)

increase variable costs
D)

increase selling price

125)

The margin of safety is the difference between:
A)

budgeted expenses and breakeven expenses
B)

budgeted revenues and breakeven revenues
C)

actual operating income and budgeted operating income
D)

actual contribution margin and budgeted contribution margin

126)

Trailhound Company operates on a contribution margin of 30% and currently has fixed costs of $200,000. Next year, sales are projected to be $1,000,000. An advertising campaign is being evaluated that costs an additional $30,000. How much would sales have to increase to justify the additional expenditure?
A)

$60,000
B)

$90,000
C)

$100,000
D)

$300,000

Answer the following questions using the information below:

Dr. Charles Hunter, MD, performs a certain outpatient procedure for $1,000. His fixed costs are $20,000, while his variable costs are $500 per procedure. Dr. Hunter currently plans to perform 200 procedures this month.

127)

What is the budgeted revenue for the month assuming that Dr. Hunter plans to perform this procedure 200 times?
A)

$100,000
B)

$200,000
C)

$300,000
D)

$400,000

128)

What is the budgeted operating income for the month assuming that Dr. Hunter plans to perform the procedure 200 times?
A)

$200,000
B)

$100,000
C)

$80,000
D)

$40,000

129)

What is the breakeven point for the month assuming that Dr. Hunter plans to perform the procedure 200 times?
A)

40 times
B)

30 times
C)

20 times
D)

10 times

130)

What is the margin of safety assuming 100 procedures are budgeted?
A)

$40,000 or 40 times
B)

$50,000 or 50 times
C)

$60,000 or 60 times
D)

$100,000 or 100 times

Answer the following questions using the information below:

Nancy’s Niche sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs.

131)

The contribution margin percentage is:
A)

12.5%
B)

25.0%
C)

37.5%
D)

75.0%

132)

The breakeven point in total sales dollars is:
A)

$40,000
B)

$13,334
C)

$100,000
D)

None of these answers are correct.

133)

To achieve $100,000 in operating income, sales must total:
A)

$440,000
B)

$160,000
C)

$130,000
D)

None of these answers are correct.

134)

If variable costs decrease by $1 per unit, the new breakeven point is:
A)

1,539 units.
B)

492 units.
C)

$11,765 in total sales dollars.
D)

None of these answers are correct.

135)

If a change is made in one parameter of CVP analysis, it is an example of:
A)

sensitivity analysis
B)

incremental budgeting
C)

operating leverage
D)

multiple cost drivers

Answer the following questions using the information below:

Martha Manufacturing produces a single product that sells for $80. Variable costs per unit equal $32. The company expects total fixed costs to be $72,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.

136)

What is the current breakeven point in terms of number of units?
A)

1,500 units
B)

2,250 units
C)

3,333 units
D)

None of these answers are correct.

137)

Suppose management believes that a $16,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by how much to justify this additional expenditure?
A)

200 units
B)

334 units
C)

500 units
D)

None of these answers are correct.

138)

Suppose that management believes that a 10% reduction in the selling price will result in a 10% increase in sales. If this proposed reduction in selling price is implemented:
A)

operating income will decrease by $8,000
B)

operating income will increase by $8,000
C)

operating income will decrease by $16,000
D)

operating income will increase by $16,000

Answer the following questions using the information below:

Cheaney Manufacturing produces a single product that sells for $200. Variable costs per unit equal $50. The company expects total fixed costs to be $120,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.

139)

What is the current breakeven point in terms of number of units?
A)

800 units
B)

900 units
C)

2,400 units
D)

None of these answers are correct.

140)

Suppose that management believes that a $24,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by how much to justify this additional expenditure?
A)

320 units
B)

480 units
C)

160 units
D)

None of these answers are correct.

141)

Suppose that management believes that a 20% reduction in the selling price will result in a 20% increase in sales. If this proposed reduction in selling price is implemented:
A)

operating income will decrease by $36,000
B)

operating income will increase by $36,000
C)

operating income will decrease by $80,000
D)

operating income will increase by $44,000

Answer the following questions using the information below:

Southwestern College is planning to hold a fundraising banquet at one of the local country clubs. It has two options for the banquet:

OPTION 1: Crestview Country Club
a. Fixed rental cost of $1,000
b. $12 per person for food

OPTION 2: Tallgrass Country Club
a. Fixed rental cost of $3,000
b. A caterer who charges $8.00 per person for food

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.

142)

Which option provides the least amount of risk?
A)

Option one
B)

Option two
C)

Both options provide the same amount of risk.
D)

Neither option has risks.

143)

Which option has the lowest breakeven point?
A)

Option one
B)

Option two
C)

Both options have the same breakeven point.
D)

The lowest breakeven point cannot be determined.

144)

Which option provides the greatest operating income if 600 people attend?
A)

Option one
B)

Option two
C)

Operating incomes are identical.
D)

Operating income is indeterminable.
145)

Which option provides the greatest degree of operating leverage if 600 people attend?
A)

Option one
B)

Option two
C)

Both options provide equal degrees of operating leverage.
D)

Operating leverage is indeterminable.

146)

Option 1: Fixed costs of $10,000 and a breakeven point of 500 units.
Option 2: Fixed costs of $20,000 and a breakeven point of 700 units.
Which option should you choose if you are expecting to produce 600 units?
A)

Option one
B)

Option two
C)

Both options are equally desirable.
D)

The best option is indeterminable.

147)

Mrs. Granberry is going to sell Christmas tree lights for $20 a box. The lights cost Marsha $5 a unit and any unsold lights can be returned for a full refund. She is planning to rent a booth at the upcoming Happy Holidays Convention, which offers three options:
1. paying a fixed fee of $1,500, or
2. paying a $500 fee plus 10% of revenues made at the convention, or
3. paying 25% of revenues made at the convention.

Which of the following statements is FALSE?
A)

Her decision will determine the risk she faces.
B)

Contribution margin will vary depending upon the option chosen.
C)

One of the options will allow Marsha to break even, even if she doesn’t sell any lights.
D)

Operating income will be the greatest for Option 3.

148)

In a company with low operating leverage:
A)

fixed costs are high and variable costs are low
B)

large changes in sales volume result in small changes in net income
C)

there is a higher possibility of net loss than a higher-leveraged firm
D)

less risk is assumed than in a highly leveraged firm

149)

If the contribution margin ratio is 0.30, targeted net income is $76,800, and targeted sales volume in dollars is $480,000, then total fixed costs are:
A)

$23,000
B)

$44,160
C)

$67,200
D)

$144,000

150)

If the contribution margin ratio is 0.40, targeted net income is $50,000, and fixed costs are $75,000, then sales volume in dollars is:
A)

$250,000
B)

$312,500
C)

$275,000
D)

$350,000

151)

If the contribution margin ratio is 0.25, targeted net income is $25,000, and targeted sales volume in dollars is $200,000, then total fixed costs are:
A)

$50.000
B)

$100,000
C)

$75,000
D)

$25,000

152)

Fixed costs:
A)

are considered variable costs over the long run
B)

provide less operating leverage
C)

reduce the risk of loss
D)

are graphed as a steeply sloped line

153)

When a greater proportion of costs are fixed costs, then:
A)

a small increase in sales results in a small decrease in operating income
B)

when demand is low the risk of loss is high
C)

when demand is high the breakeven point is increased
D)

a decrease in sales reduces the cost per unit

Answer the following questions using the information below:

The following information is for Barnett Corporation:

Product X: Revenue $10.00
Variable Cost $2.50

Product Y: Revenue $15.00
Variable Cost $5.00

Total fixed costs $50,000

154)

What is the breakeven point assuming the sales mix consists of two units of Product X and one unit of Product Y?
A)

1,000 units of Y and 2,000 units of X
B)

1012.5 units of Y and 2,025 units of X
C)

2012.5 units of Y and 4,025 units of X
D)

2,000 units of Y and 4,000 units of X

155)

What is the operating income, assuming actual sales total 150,000 units, and the sales mix is two units of Product X and one unit of Product Y?
A)

$1,200,000
B)

$1,250,000
C)

$1,750,000
D)

None of these answers are correct.

156)

If the sales mix shifts to one unit of Product X and two units of Product Y, then the weighted-average contribution margin will:
A)

increase per unit
B)

stay the same
C)

decrease per unit
D)

be indeterminable

157)

If the sales mix shifts to one unit of Product X and two units of Product Y, then the breakeven point will:
A)

increase
B)

stay the same
C)

decrease
D)

be indeterminable

Answer the following questions using the information below:

The following information is for the Jeffries Corporation:

Product A: Revenue $16.00
Variable Cost $12.00

Product B: Revenue $24.00
Variable Cost $16.00

Total fixed costs $75,000

158)

What is the breakeven point, assuming the sales mix consists of three units of Product A and one unit of Product B?
A)

10,000 units of A and 5,000 units of B
B)

11,250 units of A and 3,750 units of B
C)

12,000 units of A and 4,000 units of B
D)

4,000 units of A and 12,000 units of B

159)

What is the operating income, assuming actual sales total 25,000 units, and the sales mix is three units of Product A and one unit of Product B?
A)

$50,000
B)

$60,000
C)

$75,000
D)

None of these answers are correct.

160)

If the sales mix shifts to four units of Product A and one unit of Product B, then the weighted-average contribution margin will:
A)

increase per unit
B)

stay the same
C)

decrease per unit
D)

be indeterminable

161)

If the sales mix shifts to four units of Product A and one unit of Product B, then the breakeven point will:
A)

increase
B)

stay the same
C)

decrease
D)

be indeterminable

162)

Assuming a constant mix of 3 units of Small for every 1 unit of Large.
Small Large Total
Sales $20 $30
VC 14 18
Total fixed costs $48,000

The breakeven point in units would be:
A)

4,800 units of Small and 1,600 units of Large
B)

1,200 units of Small and 400 units of Large
C)

1,600 units of Small and 4,800 units of Large
D)

400 units of Small and 1,200 units of Large

163)

In multiproduct situations, when sales mix shifts toward the product with the highest contribution margin then:
A)

total revenues will decrease
B)

breakeven quantity will increase
C)

total contribution margin will decrease
D)

operating income will increase

164)

If a company has a degree of operating leverage of 2.0 and sales increase by 25%, then:
A)

total variable costs will increase by 50%
B)

total variable costs will not change
C)

profit will increase by 20%
D)

profit will increase by 50%

165)

If a company would like to increase its degree of operating leverage it should:
A)

increase its inventories relative to its receivables
B)

increase its receivables relative to its inventories
C)

increase its variable costs relative to its fixed costs
D)

increase its fixed costs relative to its variable costs

166)

Multiple cost drivers:
A)

have only one revenue driver
B)

can utilize the simple CVP formula
C)

have no unique breakeven point
D)

are the result of multiple products

167)

A nonprofit organization aids the unemployed by supplementing their incomes by $3,200 annually, while they seek new employment skills. The organization has fixed costs of $240,000 and the budgeted appropriation for the year totals $800,000. How many individuals can receive financial assistance this year?
A)

175 people
B)

130 people
C)

100 people
D)

75 people

168)

Helping Hands is a nonprofit organization that supplies electric fans during the summer for individuals in need. Fixed costs are $200,000. The fans cost $20.00 each. The organization has a budgeted appropriation of $480,000. How many people can receive a fan during the summer?
A)

12,000 people
B)

14,000 people
C)

24,000 people
D)

34,000 people

169)

Mount Carmel Company sells only two products, Product A and Product B.

Product A Product B Total
Selling price $40 $50
Variable cost per unit $24 $40
Total fixed costs $840,000

Mount Carmel sells two units of Product A for each unit it sells of Product B. Mount Carmel faces a tax rate of 30%. Mount Carmel desires a net after-tax income of $73,500. The breakeven point in units would be:
A)

21,750 units of Product A and 43,500 units of Product B
B)

22,500 units of Product A and 45,000 units of product B
C)

43,500 units of Product A and 21,750 units of Product B
D)

45,000 units of Product A and 22,500 units of Product B

170)

Gross margin is:
A)

sales revenue less variable costs
B)

sales revenue less cost of goods sold
C)

contribution margin less fixed costs
D)

contribution margin less variable costs

171)

In the merchandising sector:
A)

only variable costs are subtracted to determine gross margin
B)

fixed overhead costs are subtracted to determine gross margin
C)

fixed overhead costs are subtracted to determine contribution margin
D)

all operating costs are subtracted to determine contribution margin

172)

In the manufacturing sector:
A)

only variable costs are subtracted to determine gross margin
B)

fixed overhead costs are subtracted to determine gross margin
C)

fixed overhead costs are subtracted to determine contribution margin
D)

all operating costs are subtracted to determine contribution margin

173)

To determine contribution margin use:
A)

only variable manufacturing costs
B)

only fixed manufacturing costs
C)

both variable and fixed manufacturing costs
D)

both variable manufacturing costs and variable nonmanufacturing costs

174)

“Uncertainty” may be defined as:
A)

the possibility that an actual amount will be the same as an expected amount
B)

the possibility that an actual amount will be either higher or lower than the expected amount
C)

the possibility that a budgeted amount will be higher than the estimated amount
D)

the possibility that the budgeted amount will be lower than the estimated amount

175)

Events, as distinguished from actions, would include:
A)

personnel policy options
B)

decisions on time schedules
C)

decisions on direct material vendors
D)

a financial recession

176)

Expected monetary value may be defined as:
A)

the probability that each outcome will occur
B)

the probability that each outcome will not occur
C)

the weighted average of the outcomes with the probability of each outcome serving as the weight
D)

the average of all possible outcomes

177)

What would be the expected monetary value for the following data using the probability method?
Probability Cash Inflows
0.20 $100,000
0.30 $80,000
0.15 $60,000
0.35 $0

A)

$20,000
B)

$94,000
C)

$53,000
D)

$30,000

178)

Lobster Liquidators will make $500,000 if the fishing season weather is good, $200,000 if the weather is fair, and would actually lose $50,000 if the weather is poor during the season. If the weather service gives a 40% probability of good weather, a 25% probability of fair weather, and a 35% probability of poor weather, what is the expected monetary value for Lobster Liquidators?
A)

$500,000
B)

$232,500
C)

$267,500
D)

$200,000

Answer the following questions using the information below:

Patrick Ross has three booth rental options at the county fair where he plans to sell his new product. The booth rental options are:

Option 1: $1,000 fixed fee, or
Option 2: $750 fixed fee + 5% of all revenues generated at the fair, or
Option 3: 20% of all revenues generated at the fair.

The product sells for $37.50 per unit. He is able to purchase the units for $12.50 each.

179)

How many actions and events will a decision table contain?
A)

1 action and 3 events
B)

1 action and 6 events
C)

2 actions and 3 events
D)

3 actions and 6 events

180)

Which option should Patrick choose to maximize income assuming there is a 40% probability that 70 units will be sold and a 60% probability that 40 units will be sold?
A)

Option one
B)

Option two
C)

Option three
D)

All options maximize income equally.

181)

Gilley, Inc., sells a single product. The company’s most recent income statement is given below.

Sales (4,000 units) $120,000
Less variable expenses (68,000)
Contribution margin 52,000
Less fixed expenses (40,000)
Net income $ 12,000

Required:

a. Contribution margin per unit is $ ________ per unit

b. If sales are doubled to $240,000,
total variable costs will equal $ ________

c. If sales are doubled to $240,000,
total fixed costs will equal $ ________

d. If 10 more units are sold, profits will increase by $ ________

e. Compute how many units must be sold to break even. # ________

f. Compute how many units must be sold
to achieve profits of $20,000. # ________

182)

Blankinship, Inc., sells a single product. The company’s most recent income statement is given below.

Sales $200,000
Less variable expenses (120,000)
Contribution margin 80,000
Less fixed expenses (50,000)
Net income $ 30,000

Required:

a. Contribution margin ratio is ________ %

b. Breakeven point in total sales dollars is $ ________

c. To achieve $40,000 in net income, sales must total $ ________

d. If sales increase by $50,000, net income will increase by $ ________

183)

In 2004, Grant Company has sales of $800,000, variable costs of $200,000, and fixed costs of $300,000. In 2005, the company expects annual property taxes to decrease by $15,000.

Required:
a. Calculate operating income and the breakeven point for 2004.
b. Calculate the breakeven point for 2005.

184)

Berhannan’s Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,5000.

Required:
a. What is the contribution margin per phone?
b. What is the breakeven point in phones?
c. How many phones must be sold to earn pretax income of $7,500?

185)

The Holiday Card Company, a producer of specialty cards, has asked you to complete several calculations based upon the following information:

Income tax rate 30%
Selling price per unit $6.60
Variable cost per unit $5.28
Total fixed costs $46,200.00

Required:

a. What is the breakeven point in cards?
b. What sales volume is needed to earn an after-tax net income of $13,028.40?
c. How many cards must be sold to earn an after-tax net income of $18,480?

186)

Royer Corporation gathered the following information:

Variable costs $945,000
Income tax rate 40%
Contribution-margin ratio 30%

Required:

a. Compute total fixed costs assuming a breakeven volume in dollars of $1,350,000.
b. Compute sales volume in dollars to produce an after-tax net income of $108,000.

187)

Alex Miller, Inc., sells car batteries to service stations for an average of $30 each. The variable cost of each battery is $20 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000.

Required:

a. What is the breakeven point in batteries?
b. What is the margin of safety, assuming sales total $60,000?
c. What is the breakeven level in batteries, assuming variable costs increase by 20%?
d. What is the breakeven level in batteries, assuming the selling price goes up by 10%, fixed manufacturing costs decline by 10%, and other fixed costs decline by $100?

188)

Furniture, Inc., sells lamps for $30. The unit variable cost per lamp is $22. Fixed costs total $9,600.

Required:

a. What is the contribution margin per lamp?
b. What is the breakeven point in lamps?
c. How many lamps must be sold to earn a pretax income of $8,000?
d. What is the margin of safety, assuming 1,500 lamps are sold?

189)

Tom’s Tire Tower, Inc., sells tires for $110. The unit variable cost per tire is $85. Fixed costs total $475,000.

Required:

a. What is the contribution margin per tire?
b. What is the breakeven point in tires?
c. How many tires must be sold to earn a pretax income of $450,000?
d. What is the margin of safety, assuming 33,000 tires are sold?

190)

Query Company sells pillows for $25.00 each. The manufacturing cost, all variable, is $10 per pillow. The company is planning on renting an exhibition booth for both display and selling purposes at the annual crafts and art convention. The convention coordinator allows three options for each participating company. They are:
1. paying a fixed booth fee of $5,010, or
2. paying an $4,000 fee plus 10% of revenue made at the convention, or
3. paying 20% of revenue made at the convention.

Required:
a. Compute the breakeven sales in pillows of each option.
b. Which option should Query Company choose, assuming sales are expected to be 800 pillows?

191)

Karen Hefner, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $30 and the average cost of each sale is $18. A new mall is opening where Karen wants to locate a store, but the location manager is not sure about the rent method to accept. The mall operator offers the following three options for its retail store rentals:
1. paying a fixed rent of $15,000 a month, or
2. paying a base rent of $9,000 plus 10% of revenue received, or
3. paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of $25,000.

Required:
a. For each option, compute the breakeven sales and the monthly rent paid at break-even.
b. Beginning at zero sales, show the sales levels at which each option is preferable up to 5,000 units.

192)

Yurus Manufacturing Company produces two products, X and Y. The following information is presented for both products:
X Y
Selling price per unit $36 $24
Variable cost per unit 28 12

Total fixed costs are $234,000.

Required:

a. Calculate the contribution margin for each product.
b. Calculate breakeven point in units of both X and Y if the sales mix is 3 units of X for every unit of Y.
c. Calculate breakeven volume in total dollars if the sales mix is 2 units of X for every 3 units of Y.

193)

Bob’s Textile Company sells shirts for men and boys. The average selling price and variable cost for each product are as follows:

Men’s Boys’
Selling Price $28.80 Selling Price $24.00
Variable Cost $20.40 Variable Cost $16.80

Fixed costs are $38,400.

Required:

a. What is the breakeven point in units for each type of shirt, assuming the sales mix is 2:1 in favor of men’s shirts?
b. What is the operating income, assuming the sales mix is 2:1 in favor of men’s shirts, and sales total 9,000 shirts?

194)

Mount Carmel Company sells only two products, Product A and Product B.

Product A Product B Total
Selling price $40 $50
Variable cost per unit $24 $40
Total fixed costs $840,000

Mount Carmel sells two units of Product A for each unit it sells of Product B. Mount Carmel faces a tax rate of 30%.

Required:

a. What is the breakeven point in units for each product assuming the sales mix is 2 units of Product A for each unit of Product B?
b. What is the breakeven point if Mount Carmel’s tax rate is reduced to 25%, assuming the sales mix is 2 units of Product A for each unit of Product B?
c. How many units of each product would be sold if Mount Carmel desired an after-tax net income of $73,500, facing a tax rate of 30%?

195)

Atlanta Radio Supply sells only two products, Product X and Product Y.

Product X Product Y Total
Selling price $25 $45
Variable cost per unit $20 $35
Total fixed costs $350,000

Atlanta Radio Supply sells three units of Product X for each two units it sells of Product Y. Atlanta Radio Supply has a tax rate of 25%.

Required:

a. What is the breakeven point in units for each product, assuming the sales mix is 3 units of Product X for each two units of Product Y?
b. How many units of each product would be sold if Atlanta Radio Supply desired an after-tax net income of $210,000, using its tax rate of 25%?

196)

Ballpark Concessions currently sells hot dogs. During a typical month, the stand reports a profit of $9,000 with sales of $50,000, fixed costs of $21,000, and variable costs of $0.64 per hot dog.

Next year, the company plans to start selling nachos for $3 per unit. Nachos will have a variable cost of $0.72 and new equipment and personnel to produce nachos will increase monthly fixed costs by $8,808. Initial sales of nachos should total 5,000 units. Most of the nacho sales are anticipated to come from current hot dog purchasers, therefore, monthly sales of hot dogs are expected to decline to $20,000.

After the first year of nacho sales, the company president believes that hot dog sales will increase to $33,750 a month and nacho sales will increase to 7,500 units a month.

Required:

a. Determine the monthly breakeven sales in dollars before adding nachos.
b. Determine the monthly breakeven sales during the first year of nachos sales, assuming a constant sales mix of 1 hotdog and 2 units of nachos.

197)

Stephanie’s Stuffed Animals reported the following:

Revenues $1,000
Variable manufacturing costs $ 200
Variable nonmanufacturing costs $ 230
Fixed manufacturing costs $ 150
Fixed nonmanufacturing costs $ 140

Required:
a. Compute contribution margin.
b. Compute gross margin.
c. Compute operating income.

198)

Arthur’s Plumbing reported the following:

Revenues $4,500
Variable manufacturing costs $ 900
Variable nonmanufacturing costs $ 810
Fixed manufacturing costs $ 630
Fixed nonmanufacturing costs $ 545

Required:
a. Compute contribution margin.
b. Compute contribution margin percentage.
c. Compute gross margin.
d. Compute gross margin percentage.
e. Compute operating income.

199)

Produce Company needs to know the pounds of apples to have on hand each day. Each pound of apples costs $0.50 and can be sold for $0.80. Unsold apples are worthless at the end of the day. The following demands were found after studying the last six months’ sales:

200 pounds of apples 30% of the time
300 pounds of apples 40% of the time
400 pounds of apples 30% of the time

Required:
Determine whether Produce Company should order 200, 300, or 400 pounds of apples.

200)

Explain when a manager would use cost-volume-profit analysis and sensitivity analysis.

201)

What is meant by the term breakeven point? Why should a manager be concerned about the breakeven point?

202)

Auto Tires has been in the tire business for four years. It rents a building but owns all of its equipment. All employees are paid a fixed salary except for the busy season (April-June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season.

Selling prices per tire average $75 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $60.

The president of Auto Tires is somewhat displeased with the company’s management accounting system because the cost behavior patterns displayed by the monthly breakeven charts are inconsistent; the busy months’ charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the breakeven point.

Required:
a. What is wrong with the accountant’s computations?
b. How can the information be presented in a better format for the president?

203)

Dolph and Evan started the DE Restaurant in 20X3. They rented a building, bought equipment, and hired two employees to work full time at a fixed monthly salary. Utilities and other operating charges remain fairly constant during each month.

During the past two years, the business has grown with average sales increasing 1% a month. This situation pleases both Dolph and Evan, but they do not understand how sales can grow by 1% a month while profits are increasing at an even faster pace. They are afraid that one day they will wake up to increasing sales but decreasing profits.

Required:
Explain why the profits have increased at a faster rate than sales. Use the terms variable costs and fixed costs in your response.

204)

What effect, and why, would a decrease in the tax rate have on a company’s breakeven point?

205)

Freddie’s company has mostly fixed costs and Valerie’s company has mostly variable costs. Which company has the greatest risk of a net loss? Explain why

206)

Suppose a company decided to automate a production line. Explain what effects this would have on a company’s cost structure using CVP terminology. Could these changes have any possible negative effect on the firm?

207)

Pennsylvania Valve Company makes three types of valves: Speedy Flow, Sure Flow, and Fine Flow. Each of the three products has a different contribution margin, and the proportions of the three products sold have remained steady over the years. How could Pennsylvania valve compute a breakeven point given this situation?

208)

Lauren had been a manager of a major hotel chain for 15 years. Due to a hotel owner’s illness, Lauren was offered the opportunity to purchase a hotel near a vacation area she had often visited. After obtaining a lawyer and an accountant to assist her, Lauren did an analysis of the business and evaluated several contingencies relating to various scenarios that might occur based on economic and weather season circumstances. Since the expected monetary value of the various scenarios was much higher than the price of the hotel, she decided to purchase the hotel. She resigned her position, obtained a loan, and purchased the hotel. The following year, there was a severe economic downturn and also a very bad weather season that reduced the number of guests and also caused a resulting mold situation in the hotel building that required expensive repair work. Lauren ran short of cash, became emotionally distraught, and eventually had to sell the hotel at a significant loss. Was it a bad decision for her to purchase the hotel instead of keeping her other managerial position? Explain.

Chapter 4

Job Costing

1)

Direct costs are allocated to the cost object using a cost-allocation method.

2)

Raw materials that can be traced to a cost object are an example of an indirect cost.

3)

Fixed and variable costs may be allocated to a cost object.

4)

Quality control costs may be a direct cost of the Manufacturing Department, but an indirect cost of an individual job.

5)

Cost objects may be jobs, products, or customers.

6)

The cost driver of an indirect cost is often used as the cost-allocation base.

7)

A company may use job costing to assign costs to different product lines and then use process costing to calculate unit costs within each product line.

8)

In each period, job costing divides the total cost of producing an indentical or similar product by the total number of units produced to obtain a per-unit cost.

9)

Job costing is commonly used to estimate costs in beverage production.

10)

In a job-costing system the cost object is an individual unit, batch, or lot of a distinct product or service.

11)

Actual costing is a method of job costing that allocates an indirect cost based on the actual indirect-cost rate times the actual quantity of the cost-allocation base.

12)

Process costing is used to assign manufacturing costs to unique batches of a product.

13)

Job costing and process costing systems share the same objective of estimating product costs.

14)

While costs are measured for individual jobs in a job cost system, they are measured for individual process stages in a process costing system.

15)

If indirect-cost rates were based on actual short-term usage, periods of lower demand would result in higher costs per unit.

16)

In job costing, only direct costs are used to determine the cost of a job.

17)

Indirect manufacturing costs should be allocated equally to each job.

18)

Each cost pool may have multiple cost allocation bases.

19)

Gross margin percentage can be used to compare the profitability of different jobs.

20)

A job-cost record is a source document, but individual items of the job-cost record may also have source documents.

21)

A materials-requisition record is an example of a source document.

22)

The reliability of the job-cost records depends on the reliability of the inputs.

23)

To smooth fluctuating levels of output, separate indirect-cost rates should be calculated for each month.

24)

Grounds-maintenance costs incurred during the summer months will distort indirect-cost rates that are computed monthly.

25)

One reason for using longer time periods to calculate indirect-cost rates is seasonal cost fluctuations.

26)

Companies typically wait for accurate information regarding actual manufacturing overhead costs before pricing a job.

27)

The budgeted indirect cost rate is the budgeted indirect costs divided by budgeted quantity of the cost allocation base.

28)

Direct costs are traced the same way for actual costing and normal costing.

29)

Normal costing assigns indirect costs based on an actual indirect-cost rate.

30)

A budgeted indirect-cost rate is computed for each cost pool using budgeted indirect costs and the budgeted quantity of the cost-allocation base.

31)

For normal costing, even though the budgeted indirect-cost rate is based on estimates, indirect costs are allocated to products based on actual levels of the cost-allocation base.
32)

Work-in-Process Control will be decreased (credited) for the amount of direct-labor costs incurred.

33)

The Work-in-Process Control account tracks job costs from the time jobs are started until they are completed.

34)

The Materials Control account is typically found in a subsidiary ledger.

35)

The Salaries Payable Control account has underlying subsidiary ledgers.

36)

Indirect materials that are requisitioned increase the Work-in-Process Control account.

37)

In a job-cost system, each indirect-cost pool has its own account in the general ledger.

38)

Manufacturing overhead costs are allocated to individual job-cost records with the use of indirect-cost rates.

39)

The Finished Goods Control account consists of actual manufacturing overhead costs rather than allocated manufacturing overhead costs.

40)

The ending balance in Work-in-Process Control represents the total costs of all jobs that have not yet been completed.

41)

The product cost reported as inventoriable costs to shareholders may differ from product costs reported for government contracting.

42)

For external reporting purposes, it is acceptable to allocate marketing costs to individual jobs.

43)

Overhead costs allocated each month are expected to equal actual overhead costs incurred each month.

44)

When actual indirect costs exceed allocated indirect costs, indirect costs have been overapplied.

45)

One reason indirect costs may be underapplied is if actual indirect costs exceed budgeted indirect costs.

46)

The proration approach to allocating overapplied or underapplied overhead adjusts individual job-cost records.

47)

The overhead accounts are closed or become zero at the end of each year.

48)

Underallocated indirect costs occur when the allocated amount of indirect costs is greater than the amount incurred for that period.

49)

The actual costs of all individual overhead categories are recorded in the Manufacturing Overhead Control account.

50)

Proration is the spreading of underallocated or overallocated overhead among ending work in process, finished goods, and costs of goods sold.

51)

A company may choose to use budgeted rates to allocate direct labor accounts if direct labor costs are difficult to trace to jobs as they are completed.
52)

It is inappropriate for service organizations such as public accounting firms to use job costing.

53)

In some variations of normal costing, organizations use budgeted rates to assign direct costs as well as indirect costs to jobs.

54)

At the end of the year, the direct costs traced to jobs using the budgeted rates will equal actual direct costs.

55)

Job costing information is used:
A)

to develop strategies
B)

to make pricing decisions
C)

for external financial reporting
D)

All of these answers are correct.

56)

Product costing information is used by managers:
A)

to make decisions and strategy
B)

for planning and control
C)

for cost management
D)

All of these answers are correct.

57)

A ________ is a grouping of individual indirect cost items.
A)

cost allocation base
B)

cost assignment
C)

cost pool
D)

job-costing system

58)

Each indirect-cost pool of a manufacturing firm:
A)

utilizes a separate cost-allocation rate
B)

is a subset of total indirect costs
C)

relates to one cost object
D)

All of these answers are correct.

59)

An updated costing system should:
A)

be installed even if the costs outweigh the additional benefits
B)

be tailored to fit the underlying operations rather than the current cost system
C)

focus specifically on the costing needs of the CFO
D)

provide all information for management decision needs

60)

In a costing system:
A)

cost tracing allocates indirect costs
B)

cost allocation assigns direct costs
C)

a cost-allocation base can be either financial or nonfinancial
D)

a cost object should be a product and not a department or a geographic territory

61)

Assigning direct costs to a cost object is called:
A)

cost allocation
B)

cost assignment
C)

cost pooling
D)

cost tracing

62)

________ is the process of distributing indirect costs to products.
A)

Cost allocation
B)

Job cost recording
C)

Cost pooling
D)

Cost tracing

63)

A ________ links an indirect cost to a cost object.
A)

cost-allocation base
B)

cost pool
C)

cost assignment
D)

cost tracing

64)

Which of the following includes both traced direct costs and allocated indirect costs?
A)

cost tracing
B)

cost pools
C)

cost assignments
D)

cost allocations

65)

Identifying department costs helps managers:
A)

control the costs for which they are responsible
B)

evaluate the performance of subordinates
C)

evaluate the performance of subunits
D)

All of these answers are correct.

66)

________ costing is a cost management system that measures the cost of products, services, and customers.
A)

Job
B)

Process
C)

Normal
D)

All of these answers are correct.

67)

Process costing:
A)

allocates all product costs, including materials and labor
B)

results in different costs for different units produced
C)

is commonly used by general contractors who construct custom-built homes
D)

is used exclusively in manufacturing

68)

________ costing is used by a business to price unique products for different jobs.
A)

Actual
B)

Job
C)

Process
D)

Traditional

69)

Job costing:
A)

can only be used in manufacturing
B)

records the flow of costs for each customer
C)

allocates an equal amount of cost to each unit made during a time period
D)

is commonly used when each unit of output is identical

70)

Job-costing may only be used by:
A)

service companies
B)

merchandising companies
C)

manufacturing companies
D)

All of these may use job-costing.

71)

Many large companies which have multiple production methods and processes have hybrid costing systems that are:
A)

job-costing
B)

actual costing
C)

process costing
D)

a mix of job-costing and process costing

72)

Actual costing is a costing method that allocates ________ indirect costs.
A)

actual
B)

budgeted
C)

estimated
D)

predetermined

73)

A job that shows low profitability may be the result of:
A)

wasting direct materials
B)

inefficient direct manufacturing labor
C)

underpricing the job
D)

All of these answers are correct.

74)

For a given job the direct costs associated with the job are:
A)

actual overhead
B)

direct material
C)

direct manufacturing labor
D)

Both b and c are correct.

75)

Place the following steps in the order suggested by the seven steps used to assign costs to individual jobs:
A. Identify indirect costs
B. Compute the total cost of the job
C. Select cost-allocation bases
D. Compute the indirect cost rate
A)

ACDB
B)

CADB
C)

BACD
D)

DCAB

76)

The basic source document for direct manufacturing labor is the:
A)

job-cost record
B)

materials-requisition record
C)

labor-time record
D)

All of these answers are correct.

77)

Problems with accurate costing occur when:
A)

incorrect job numbers are recorded on source documents
B)

bar coding is used to record materials used on the job
C)

a computer screen requests an employee number before that employee is able to work on information related to a specific job
D)

All of these answers are correct.

78)

If actual indirect-cost rates were calculated monthly rather than annually, then for the month of February with only 28 days:
A)

variable indirect-cost rates would be lower
B)

total indirect-cost rates would be higher
C)

fixed indirect-cost rates would be lower
D)

monthly output would be higher

79)

If indirect-cost rates are calculated monthly, distortions might occur because of:
A)

rental costs paid monthly
B)

property tax payments made in July and December
C)

routine monthly preventive-maintenance costs that benefit future months
D)

Both B and C are correct.

80)

Normandeau Company’s actual manufacturing overhead is $1,400,000. Overhead is allocated on the basis of direct labor hours. The direct labor hours were 25,000 for the period. What is the manufacturing overhead rate?
A)

$47.00
B)

$56.00
C)

$75.00
D)

None of the above are correct.

81)

Copley Enterprises manufactures digital video equipment. For each unit $1,475 of direct material is used and there is $1,500 of direct manufacturing labor at $30 per hour. Manufacturing overhead is applied at $35 per direct manufacturing labor hour. Calculate the cost of each unit.
A)

$2,975
B)

$4,025
C)

$4,725
D)

$3,150

82)

An example of a numerator reason for calculating annual indirect-cost rates includes:
A)

fewer production workdays in a month
B)

payment of estimated taxes four times a year
C)

higher snow-removal costs during the winter
D)

Both B and C are correct.

83)

An example of a denominator reason for calculating annual indirect-cost rates includes:
A)

higher heating bills in the winter
B)

semi-annual insurance payments in March and September
C)

higher levels of output demanded during the fall months
D)

All of these answers are correct.

84)

In a job-costing system, a manufacturing firm typically uses an indirect-cost rate to estimate the ________ allocated to a job.
A)

direct materials
B)

direct labor
C)

manufacturing overhead costs
D)

total costs

85)

A job-cost sheet details the:
A)

direct materials purchased and paid
B)

direct labor costs incurred
C)

indirect labor costs incurred
D)

actual indirect overhead costs incurred

86)

A job-cost record uses information from:
A)

a materials requisition record to record raw material purchases from suppliers
B)

a receiving report that indicates the type and quantity of each item received in an order from a supplier
C)

a labor-time card to record an employee’s wage rate and hours spent on a particular job
D)

All of these answers are correct.

87)

Costs that are subject to short-run fluctuations for given jobs are:
A)

actual costs
B)

budgeted direct costs
C)

budgeted indirect costs
D)

normal costs

88)

Annual cost rates are preferred over actual cost rates for all of the following reasons EXCEPT:
A)

budgeted costs allow managers to have cost information on a timely basis
B)

budgeted costs may be subject to short-run fluctuations
C)

budgeted indirect-cost rates are known prior to the inception of a new job
D)

budgeted-cost rates can be used to allocate direct or indirect costs

89)

Fixed costs remain constant at $200,000 per month. During high-output months variable costs are $160,000, and during low-output months variable costs are $40,000. What are the respective high and low indirect-cost rates if budgeted professional labor-hours are 8,000 for high-output months and 2,000 for low-output months?
A)

$45.00 per hour; $120.00 per hour
B)

$45.00 per hour; $45.00 per hour
C)

$25.00 per hour; $20.00 per hour
D)

$56.20 per hour; $120.00 per hour

90)

Managers and accountants collect most of the cost information that goes into their systems through:
A)

an information databank
B)

computer programs
C)

source documents
D)

time surveys

91)

The budgeted indirect-cost rate is calculated:
A)

at the beginning of the year
B)

during the year
C)

at the end of each quarter
D)

at the end of the year

92)

The difference between actual costing and normal costing is:
A)

normal costing uses actual direct-cost rates
B)

actual costing uses actual quantities of direct-cost inputs
C)

normal costing uses budgeted indirect-cost rates
D)

actual costing uses actual quantities of cost-allocation bases

93)

Which of the following statements about normal costing is TRUE?
A)

Direct costs and indirect costs are traced using an actual rate.
B)

Direct costs and indirect costs are traced using budgeted rates.
C)

Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate.
D)

Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate.

94)

When using a normal costing system, manufacturing overhead is allocated using the ________ manufacturing overhead rate and the ________ quantity of the allocation base.
A)

budgeted; actual
B)

budgeted; budgeted
C)

actual; budgeted
D)

actual; actual

95)

Which of the following statements about actual costing and normal costing is TRUE?
A)

Manufacturing costs of a job are available earlier under actual costing.
B)

Corrective actions can be implemented sooner under normal costing.
C)

Manufacturing costs are available earlier under normal costing.
D)

Both B and C are correct.

96)

In a normal costing system, the Manufacturing Overhead Control account:
A)

is increased by allocated manufacturing overhead
B)

is credited with amounts transferred to Work-in-Process
C)

is decreased by allocated manufacturing overhead
D)

is debited with actual overhead costs

97)

The Materials Control account is increased when:
A)

direct materials are purchased
B)

indirect materials are purchased
C)

materials are requisitioned for production
D)

Both A and B are correct.

98)

All of the following are true of the Work-in-Process Control account EXCEPT that:
A)

it tracks all direct material purchases
B)

the balance equals the sum of amounts from all in-process individual job-cost records
C)

it is an asset account
D)

it tracks job costs from beginning through completion

99)

All of the following are general ledger accounts EXCEPT:
A)

the Salaries Payable Control account
B)

the Prepaid Insurance Control account
C)

the Accounts Receivable subsidiary account for Ruben Electric
D)

the Advertising Costs account

100)

All of the following increase (are debited to) the Work-in-Process Control account EXCEPT:
A)

actual plant insurance costs
B)

direct materials
C)

allocated manufacturing overhead costs
D)

direct manufacturing labor
101)

When indirect materials are requisitioned the ________ account is increased.
A)

Manufacturing Overhead Control
B)

Work-in-Process Control
C)

Materials Control
D)

Accounts Payable Control

102)

Payment of the total manufacturing payroll decreases the:
A)

Work-in-Process Control account
B)

Manufacturing Overhead Control account
C)

Wages Payable Control account
D)

None of these answers are correct.

103)

All of the following are true of plant utility costs EXCEPT:
A)

the source document is the utility bill
B)

the cost increases the Manufacturing Overhead Control account
C)

the cost increases the Work-in-Process Control account
D)

it is an indirect cost

104)

Actual (rather than allocated) manufacturing overhead costs are included in the:
A)

Work-in-Process Control account
B)

Finished Goods Control account
C)

Manufacturing Overhead Control account
D)

Both A and B are correct.

105)

The ending balance in the Finished Goods Control account represents the costs of all jobs that:
A)

have not been completed
B)

have been completed but not sold
C)

have been completed and sold to customers
D)

are reported on the income statement

106)

For externally reported inventory costs, the Work-in-Process Control account is increased (debited) by:
A)

marketing costs
B)

allocated plant utility costs
C)

the purchase costs of direct and indirect materials
D)

customer-service costs

107)

What is the appropriate journal entry if $100,000 of materials were purchased on account for the month of August?
A)

Materials Control 100,000
Accounts Payable Control 100,000
B)

Work-in-Process Control 100,000
Accounts Payable Control 100,000
C)

Manufacturing Overhead Control 100,000
Accounts Receivable Control 100,000
D)

Manufacturing Allocated 100,000
Accounts Receivable Control 100,000

108)

What is the appropriate journal entry if direct materials of $50,000 and indirect materials of $3,000 are sent to the manufacturing plant floor?
A)

Work-in-Process Control 50,000
Materials Control 50,000
B)

Work-in-Process Control 53,000
Materials Control 53,000
C)

Manufacturing Overhead Control 3,000
Materials Control 50,000
Work-in-Process Control 53,000
D)

Work-in-Process Control 50,000
Manufacturing Overhead Control 3,000
Materials Control 53,000

109)

All of the following items are debited to Work-in-Process EXCEPT:
A)

allocated manufacturing overhead
B)

completed goods being transferred out of the plant
C)

direct labor consumed
D)

direct materials consumed

110)

What would be the appropriate journal entry if the following labor wages were incurred in a furniture manufacturing company?

Assembly workers $30,000
Janitors $20,000
A)

Work-in-Process Control 50,000
Wages Payable Control 50,000
B)

Work-in-Process Control 30,000
Manufacturing Overhead Control 20,000
Wages Payable Control 50,000
C)

Manufacturing Overhead Control 50,000
Wages Payable Control 50,000
D)

Wages Payable Control 50,000
Work-in-Process Control 50,000

111)

Manufacturing overhead costs incurred for the month are:

Utilities $15,000
Depreciation on equipment $25,000
Repairs $10,000

Which is the correct journal entry assuming utilities and repairs were on account?
A)

Manufacturing Overhead Control 50,000
Accounts Payable Control 25,000
Accumulated Depreciation Control 25,000
B)

Manufacturing Overhead Control 50,000
Accounts Payable Control 50,000
C)

Manufacturing Overhead Control 50,000
Accumulated Depreciation Control 50,000
D)

Accumulated Depreciation Control 25,000
Accounts Payable Control 25,000
Manufacturing Overhead Control 50,000

112)

Which of the following statements regarding manufacturing overhead allocation is FALSE?
A)

It includes all manufacturing costs that cannot be directly traced to a product or service.
B)

The costs can be grouped in either a single indirect-cost pool or in multiple indirect-cost pools.
C)

Total costs are unknown at the end of the accounting period.
D)

Allocated amounts are debited to Work-in-Process.

113)

When a job is complete:
A)

Work-in-Process Control is debited
B)

Finished Goods Control is credited
C)

the cost of the job is transferred to Manufacturing Overhead Control
D)

actual direct materials, actual direct manufacturing labor, and allocated manufacturing overhead will comprise the total cost of the job

114)

During an accounting period, job costs are computed on an ongoing basis by the use of:
A)

actual allocation rates
B)

budgeted indirect-cost rates
C)

overallocated indirect-cost rates
D)

underallocated indirect-cost rates

115)

The advantage of using normal costing instead of actual costing is:
A)

indirect costs are assigned at the end of the year when they are known
B)

the job cost is more accurate under normal costing
C)

indirect costs are assigned to a job on a timely basis
D)

normal costing provides a higher gross profit margin

116)

The spreading of underallocated or overallocated overhead among ending work-in-process, finished goods, and cost of goods sold is called:
A)

the adjusted allocation rate approach
B)

the proration approach
C)

the write-off of cost of goods sold approach
D)

None of these answers are correct.

117)

The Manufacturing Overhead Control account is the record of:
A)

actual direct material and direct manufacturing labor costs
B)

actual overhead costs
C)

allocated overhead when using normal costing
D)

Both A and B are correct answers when using normal costing.

118)

When the allocated amount of indirect costs are less than the actual amount, indirect costs have been:
A)

overabsorbed
B)

underapplied
C)

underallocated
D)

Both underapplied and underallocated are correct.

119)

One reason indirect costs may be overapplied is because:
A)

the actual allocation base quantity exceeds the budgeted quantity
B)

budgeted indirect costs exceed actual indirect costs
C)

requisitioned direct materials exceed budgeted material costs
D)

Both A and B are correct.

120)

The ________ approach adjusts individual job-cost records to account for underallocated or overallocated overhead.
A)

adjusted allocation-rate
B)

proration
C)

write-off to cost of goods sold
D)

Both A and B are correct.

121)

The adjusted allocation approach yields the benefits of:
A)

timeliness and convenience of normal costing
B)

allocation of of actual manufacturing overhead costs at the end of the year
C)

Both a and b are correct.
D)

Neither a nor b are correct.

122)

The simplest approach to dealing with underallocated or overallocated overhead is the ________ approach.
A)

adjusted allocation-rate
B)

proration
C)

write-off to cost of goods sold
D)

Both A and B are correct.

123)

The ________ approach carries the underallocated or overallocated amounts to overhead accounts in the following year.
A)

adjusted allocation-rate
B)

proration
C)

write-off to cost of goods sold
D)

None of these answers are correct.

124)

A company would use multiple cost-allocation bases:
A)

if managers believed the benefits exceeded the additional costs of that costing system
B)

because there is more than one way to allocate overhead
C)

because this is a simpler approach than using one cost allocation base
D)

if managers believe that using multiple cost-allocation bases is the only acceptable method

125)

In the service sector:
A)

direct labor costs are always easy to trace to jobs
B)

a budgeted direct-labor cost rate may be used to apply direct labor to jobs
C)

normal costing may not be used
D)

overhead is generally applied using an actual cost-allocation rate

126)

In the service sector, to achieve timely reporting on the profitability of an engagement, a company will use:
A)

budgeted rates for all direct costs
B)

budgeted rates for indirect costs
C)

actual costing
D)

budgeted rates for some direct costs and indirect costs

127)

Sara employs 25 professional cleaners. Budgeted costs total $900,000 of which $525,000 is direct costs. Budgeted indirect costs are $375,000 and actual indirect costs were $396,900. Budgeted professional labor-hours are 500,000 and actual hours were 504,000. What is the budgeted direct cost-allocation rate?
A)

$1.80 per hour
B)

$1.7857 per hour
C)

$0.75 per hour
D)

$1.05 per hour

128)

The budgeted direct-labor cost rate includes ________ in the calculation.
A)

budgeted total costs in indirect cost pool
B)

budgeted total direct-labor costs in the denominator
C)

budgeted total direct-labor costs in the numerator
D)

budgeted total direct-labor hours in the numerator

129)

The law firm of Smith & Jones has a staff of 30 lawyers and administrative staff. Budgeted total costs of the firm total $2,100,000 of which $1,200,000 is direct-labor costs. Assuming that the remaining costs are indirect and direct-labor cost is the allocation base, calculate the budgeted indirect cost rate.
A)

57% of direct-labor cost
B)

75% of direct-labor cost
C)

43% of direct-labor cost
D)

175% of direct-labor cost

130)

Using job costing, the 20X5 budgeted manufacturing overhead rate is:
A)

$4.00 per machine-hour
B)

$4.80 per machine-hour
C)

$5.00 per machine-hour
D)

$6.00 per machine-hour

131)

Using normal costing, the amount of manufacturing overhead costs allocated to jobs during 20X5 is:
A)

$150,000
B)

$125,000
C)

$120,000
D)

$100,000

132)

Using job costing, the 20X5 actual indirect-cost rate is:
A)

$4.00 per machine-hour
B)

$4.80 per machine-hour
C)

$5.00 per machine-hour
D)

$6.00 per machine-hour

133)

Using actual costing, the amount of manufacturing overhead costs allocated to jobs during 20X5 is:
A)

$150,000
B)

$125,000
C)

$120,000.
D)

$100,000

134)

A single indirect-cost rate based on direct manufacturing labor-hours for the entire plant is:
A)

$ 8 per direct labor-hour
B)

$10 per direct labor-hour
C)

$20 per direct labor-hour
D)

None of these answers is correct.

135)

The budgeted indirect-cost driver rate for the Machining Department based on the number of machine-hours in that department is:
A)

$5 per machine-hour
B)

$10 per machine-hour
C)

$20 per machine-hour
D)

None of these answers is correct.

Answer the following questions using the information below:

Joni’s Kitty Supplies applies manufacturing overhead costs to products at a budgeted indirect-cost rate of $60 per direct manufacturing labor-hour. A retail outlet has requested a bid on a special order of the Toy Mouse product. Estimates for this order include: Direct materials $40,000; 500 direct manufacturing labor-hours at $20 per hour; and a 20% markup rate on total manufacturing costs.

136)

Manufacturing overhead cost estimates for this special order total:
A)

$10,000
B)

$30,000
C)

$36,000
D)

None of these answers is correct.

137)

Estimated total product costs for this special order equal:
A)

$96,000
B)

$50,000
C)

$80,000
D)

None of these answers is correct.

138)

The bid price for this special order is:
A)

$50,000
B)

$60,000
C)

$80,000
D)

$96,000

Answer the following questions using the information below:

Sunny Company manufactures pipes and applies manufacturing overhead costs to production at a budgeted indirect-cost rate of $15 per direct labor-hour. The following data are obtained from the accounting records for June 20X2:

Direct materials $280,000
Direct labor (7,000 hours @ $11/hour) $ 77,000
Indirect labor $ 20,000
Plant facility rent $ 60,000
Depreciation on plant machinery and equipment $ 30,000
Sales commissions $ 40,000
Administrative expenses $ 50,000

139)

The actual amount of manufacturing overhead costs incurred in June 20X2 totals:
A)

$557,000
B)

$200,000
C)

$110,000
D)

$ 80,000

140)

The amount of manufacturing overhead allocated to all jobs during June 20X2 totals:
A)

$77,000
B)

$105,000
C)

$110,000
D)

$200,000

141)

For June 20X2, manufacturing overhead was:
A)

overallocated
B)

underallocated
C)

neither overallocated nor underallocated
D)

indeterminable

Answer the following questions using the information below:

Gibson Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Winfield High School band jacket job.

Company Winfield High School Job
Direct materials $40,000 $1,000
Direct labor $10,000 $200
Manufacturing overhead costs $30,000
Machine-hours 100,000 mh 900 mh

142)

For Gibson Manufacturing, what is the annual manufacturing overhead cost-allocation rate?
A)

$0.50
B)

$0.80
C)

$0.30
D)

$33.33

143)

What amount of manufacturing overhead costs will be allocated to this job?
A)

$270
B)

$720
C)

$450
D)

$30,000

144)

What are the total manufacturing costs of this job?
A)

$1,200
B)

$1,470
C)

$1,650
D)

$1,920

145)

What is the bid price for the Winfield High School job if the company uses a 40% markup of total manufacturing costs?
A)

$2,310
B)

$588
C)

$1,680
D)

$2,058

Answer the following questions using the information below:

Bauer Manufacturing uses departmental cost driver rates to allocate manufacturing overhead costs to products. Manufacturing overhead costs are allocated on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 20X3, the following estimates were provided for the coming year:

Machining Assembly
Direct labor-hours 30,000 60,000
Machine-hours 80,000 20,000
Direct labor cost $500,000 $900,000
Manufacturing overhead costs $420,000 $240,000

The accounting records of the company show the following data for Job #316:

Machining Assembly
Direct labor-hours 120 70
Machine-hours 60 5
Direct material cost $300 $200
Direct labor cost $100 $400

146)

For Bauer Manufacturing, what is the annual manufacturing overhead cost-allocation rate for the Machining Department?
A)

$4.00
B)

$4.20
C)

$4.67
D)

$5.25

147)

What amount of manufacturing overhead costs will be allocated to Job #316?
A)

$439
B)

$502
C)

$595
D)

$532

148)

What are the total manufacturing costs of Job #316?
A)

$715
B)

$880
C)

$1,595
D)

$1,000

Answer the following questions using the information below:

Wayland Manufacturing uses a normal cost system and had the following data available for 20X5:

Direct materials purchased on account $ 74,000
Direct materials requisitioned 41,000
Direct labor cost incurred 65,000

Factory overhead incurred 73,000
Cost of goods completed 146,000
Cost of goods sold 128,000

Beginning direct materials inventory 13,000
Beginning WIP inventory 32,000
Beginning finished goods inventory 29,000
Overhead application rate, as a percent of direct-labor costs 125 percent

149)

The journal entry to record the materials placed into production would include a:
A)

credit to Direct Materials Inventory for $41,000
B)

debit to Direct Materials Inventory for $74,000
C)

credit to WIP Inventory for $41,000
D)

debit to WIP Inventory for $74,000

150)

The ending balance of direct materials inventory is:
A)

$46,000
B)

$87,000
C)

$41,000
D)

$54,000

151)

The ending balance of work-in-process inventory is:
A)

$219,250
B)

$73,250
C)

$65,000
D)

$211,000

152)

The ending balance of finished goods inventory is:
A)

$29,000
B)

$18,000
C)

$47,000
D)

$146,000

Answer the following questions using the information below:

Apple Valley Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are:

Department A Department B
Direct materials $700,000 $100,000
Direct manufacturing labor $200,000 $800,000
Manufacturing overhead $600,000 $400,000

The actual material and labor costs charged to Job #432 were as follows:

Total
Direct materials: $25,000
Direct labor:
Department A $ 8,000
Department B $12,000
$20,000

Apple Valley applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year.

153)

For Department A, the manufacturing overhead allocation rate is:
A)

33%
B)

66%
C)

300%
D)

100%

154)

For Department B, the manufacturing overhead allocation rate is:
A)

50%
B)

100%
C)

200%
D)

300%

155)

Manufacturing overhead costs allocated to Job #432 total:
A)

$30,000
B)

$12,000
C)

$24,000
D)

$36,000

156)

Manufacturing costs estimated for Job #432 total:
A)

$55,000
B)

$65,000
C)

$70,000
D)

$75,000

Answer the following questions using the information below:

Because the Abernathy Company used a budgeted indirect-cost rate for its manufacturing operations, the amount allocated ($200,000) was different from the actual amount incurred ($225,000).

Ending balances in the relevant accounts are:
Work-in-Process $ 10,000
Finished Goods 20,000
Cost of Goods Sold 170,000

157)

What is the journal entry used to write off the difference between allocated and actual overhead directly to cost of goods sold?
A)

Manufacturing Overhead Allocated 200,000
Cost of Goods Sold 25,000
Manufacturing Overhead Control 225,000
B)

Manufacturing Overhead Control 200,000
Cost of Goods Sold 25,000
Manufacturing Overhead Allocated 225,000
C)

Manufacturing Overhead Allocated 200,000
Work-in-Process Control 30,000
Cost of Goods Sold 170,000
D)

Manufacturing Overhead Control 225,000
Work-in-Process Control 55,000
Cost of Goods Sold 170,000

158)

What is the journal entry used to write off the difference between allocated and actual overhead using the proration approach?
A)

Manufacturing Overhead Allocated 200,000
Work-in-Process Control 10,000
Finished Goods Control 20,000
Manufacturing Overhead Control 230,000
B)

Manufacturing Overhead Allocated 225,000
Work-in-Process Control 1,250
Finished Goods Control 2,500
Cost of Goods Sold 21,250
Manufacturing Overhead Control 200,000
C)

Manufacturing Overhead Control 225,000
Work-in-Process Control 1,250
Finished Goods Control 2,500
Cost of Goods Sold 21,250
Manufacturing Overhead Allocated 200,000
D)

Manufacturing Overhead Allocated 200,000
Work-in-Process Control 1,250
Finished Goods Control 2,500
Cost of Goods Sold 21,250
Manufacturing Overhead Control 225,000

Answer the following questions using the information below:

Roiann and Dennett Law Office employs 12 full-time attorneys and 10 paraprofessionals. Direct and indirect costs are applied on a professional labor-hour basis that includes both attorney and paraprofessional hours. Following is information for 20X3:

Budget Actual
Indirect costs $270,000 $300,000
Annual salary of each attorney $100,000 $110,000
Annual salary of each paraprofessional $ 29,000 $ 30,000
Total professional labor-hours 50,000 dlh 60,000 dlh

159)

What are the actual direct-cost rate and the actual indirect-cost rate, respectively, per professional labor-hour?
A)

$27.00; $4.17
B)

$29.80; $5.40
C)

$32.40; $5.00
D)

$27.00; $5.00

160)

What are the budgeted direct-cost rate and the budgeted indirect-cost rate, respectively, per professional labor-hour?
A)

$27.00; $4.17
B)

$29.80; $5.40
C)

$32.40; $5.00
D)

$27.00; $5.00

161)

How much should the client be billed in an actual costing system if 200 professional labor-hours are used?
A)

$5,000
B)

$6,960
C)

$7,480
D)

$6,400

162)

How much should a client be billed in a normal costing system when 1,000 professional labor-hours are used?
A)

$32,000
B)

$29,800
C)

$35,200
D)

$27,000

163)

When a normal costing system is used, clients using proportionately more attorney time than paraprofessional time will:
A)

be overbilled for actual resources used
B)

be underbilled for actual resources used
C)

be billed accurately for actual resources used
D)

result in an underallocation of direct costs

164)

When using a normal costing system, year-end accounting records will show that indirect costs are:
A)

applied improperly
B)

underallocated
C)

overbudgeted
D)

overallocated

Answer the following questions using the information below:

A local accounting firm employs 20 full-time professionals. The budgeted annual compensation per employee is $40,500. The average chargeable time is 500 hours per client annually. All professional labor costs are included in a single direct-cost category and are allocated to jobs on a per-hour basis.

Other costs are included in a single indirect-cost pool, allocated according to professional labor-hours. Budgeted indirect costs for the year are $787,500, and the firm expects to have 90 clients during the coming year.

165)

What is the budgeted direct labor cost rate per hour?
A)

$18.00 per hour
B)

$17.50 per hour
C)

$4.05 per hour
D)

$2,000 per hour
166)

What is the budgeted indirect-cost rate per hour?
A)

$1,575.00 per hour
B)

$78.75 per hour
C)

$18.00 per hour
D)

$17.50 per hour

167)

If ten clients are lost and the workforce stays at 20 employees, then the direct labor cost rate per hour:
A)

will remain the same as before
B)

will increase
C)

will decrease
D)

is indeterminable

168)

For each item below indicate the source documents that would most likely authorize the journal entry in a job-costing system.

Required:
a. direct materials purchased
b. direct materials used
c. direct manufacturing labor
d. indirect manufacturing labor
e. finished goods control
f. cost of goods sold

169)

Give three examples of costs that can be considered indirect for a product and direct for a department.

170)

Fox Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Maize High School Science Olympiad Jacket job.

Company Maize High School Job
Direct materials $50,000 $500
Direct manufacturing labor $10,000 $100
Manufacturing overhead costs $40,000
Machine-hours 100,000 mh 800 mh

Required:

a. For Fox Manufacturing, determine the annual manufacturing overhead cost-allocation rate.

b. Determine the amount of manufacturing overhead costs allocated to the Maize High School job.

c. Determine the estimated total manufacturing costs for the Maize High School job.

171)

Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 20X5, the following estimates were provided for the coming year:

Machining Assembly
Direct labor-hours 10,000 dlh 90,000 dlh
Machine-hours 100,000 mh 5,000 mh
Direct labor cost $ 80,000 $720,000
Manufacturing overhead costs $250,000 $360,000

The accounting records of the company show the following data for Job #846:

Machining Assembly
Direct labor-hours 50 dlh 120 dlh
Machine-hours 170 mh 10 mh
Direct material cost $2,700 $1,600
Direct labor cost $ 400 $ 900

Required:
a. Compute the manufacturing overhead allocation rate for each department.

b. Compute the total cost of Job #846.

c. Provide possible reasons why Hill Manufacturing uses two different cost allocation rates.

172)

Jordan Company has two departments, X and Y. Overhead is applied based on direct labor cost in Department X and machine-hours in Department Y. The following additional information is available:

Budgeted Amounts Department X Department Y
Direct labor cost $180,000 $165,000
Factory overhead $225,000 $180,000
Machine-hours 51,000 mh 40,000 mh

Actual data for Job #10 Department X Department Y
Direct materials requisitioned $10,000 $16,000
Direct labor cost $11,000 $14,000
Machine-hours 5,000 mh 3,000 mh

Required:
a. Compute the budgeted factory overhead rate for Department X.
b. Compute the budgeted factory overhead rate for Department Y.
c. What is the total overhead cost of Job 10?
d. If Job 10 consists of 50 units of product, what is the unit cost of this job?

173)

Job-cost records for Boucher Company contained the following data:
Total Cost
Date Date Date of Job
Job No. Started Finished Sold at June 30
220 May 18 June 12 June 20 $6,000
221 May 20 June 19 June 21 4,000
222 June 7 July 5 July 12 7,000
223 June 10 June 28 July 1 6,500
224 June 19 July 16 July 25 8,000

Required:
a. Compute WIP inventory at June 30.
b. Compute finished goods inventory at June 30.
c. Compute cost of goods sold for June.

174)

LeBlanc Company has the following balances as of the year ended December 31, 20X5.

Direct Materials Inventory $15,000 Dr.
WIP Inventory 34,500 Dr.
Finished Goods Inventory 49,500 Dr.
Factory Department Overhead 4,000 Dr.
Cost of Goods Sold 74,500 Dr.

Additional information is as follows:

Cost of direct materials purchased during 20X5 $41,000
Cost of direct materials requisitioned in 20X5 47,000
Cost of goods completed during 20X5 102,000
Factory overhead applied (120% of direct labor) 48,000

Required:

a. Compute beginning direct materials inventory.
b. Compute beginning WIP inventory.
c. Compute beginning finished goods inventory.
d. Compute actual factory overhead incurred.

175)

Cowley County Hospital uses a job-costing system for all patients who have surgery. In March, the pre-operating room (PRE-OP) and operating room (OR) had budgeted allocation bases of 4,000 nursing hours and 2,000 nursing hours, respectively. The budgeted nursing overhead charges for each department for the month were $168,000 and $132,000, respectively. The hospital floor for surgery patients had budgeted overhead costs of $1,200,000 and 15,000 nursing hours for the month. For patient Fred Adams, actual hours incurred were eight and four hours, respectively, in the PRE-OP and OR rooms. He was in the hospital for 4 days (96 hours). Other costs related to Adams were:

PRE-OP OR In-room
Costs Costs Costs
Patient medicine $ 200 $ 500 $2,400
Direct nursing time $1,000 $2,000 $3,000

The hospital uses a budgeted overhead rate for applying overhead to patient stays.

Required:
What is the total cost of the stay of patient Fred Adams?

176)

The Dougherty Furniture Company manufactures tables. In March, the two production departments had budgeted allocation bases of 4,000 machine-hours in Department 100 and 8,000 direct manufacturing labor-hours in Department 200. The budgeted manufacturing overheads for the month were $57,500 and $62,500, respectively. For Job A, the actual costs incurred in the two departments were as follows:
Department 100 Department 200
Direct materials purchased on account $110,000 $177,500
Direct materials used 32,500 13,500
Direct manufacturing labor 52,500 53,500
Indirect manufacturing labor 11,000 9,000
Indirect materials used 7,500 4,750
Lease on equipment 16,250 3,750
Utilities 1,000 1,250

Job A incurred 800 machine-hours in Department 100 and 300 manufacturing labor-hours in Department 200. The company uses a budgeted overhead rate for applying overhead to production.

Required:
a. Determine the budgeted manufacturing overhead rate for each department.
b. Prepare the necessary journal entries to summarize the March transactions for Department 100.
c. What is the total cost of Job A?

177)

Peterson’s Plastic Products Company manufactures pipes and applies manufacturing costs to production at a budgeted indirect-cost rate of $8 per direct labor-hour. The following data are obtained from the accounting records for June 20X5:

Direct materials $400,000
Direct labor (8,000 hours @ $11/hour) $ 88,000
Indirect labor $ 10,000
Plant facility rent $ 50,000
Depreciation on plant machinery and equipment $ 20,000
Sales commissions $ 30,000
Administrative expenses $ 40,000

Required:
a. What actual amount of manufacturing overhead costs was incurred during June 20X5?
b. What amount of manufacturing overhead was allocated to all jobs during June 20X5?
c. For June 20X5, was manufacturing overhead underallocated or overallocated? Explain.

178)

Modern Electronics manufactures surround sound systems and applies manufacturing costs to production at a budgeted indirect-cost rate of $22 per direct-labor hour. The following data are obtained from the accounting records for August 20X9:

Direct materials $350,000
Direct labor (7,000 hours @ $15/hour) $105,000
Indirect labor $ 15,000
Plant lease $ 75,000
Depreciation on plant and equipment $ 40,000
Marketing expense $ 20,000
Plant utilities $ 15,000

Required:
a. What actual amount of manufacturing overhead cost was incurred during August 20X9?
b. What amount of manufacturing overhead was allocated to all jobs during August 20X9?
c. For August 20X9, was manufacturing overhead underallocated or overallocated? Explain.

179)

Moira Company has just finished its first year of operations and must decide which method to use for adjusting cost of goods sold. Because the company used a budgeted indirect-cost rate for its manufacturing operations, the amount that was allocated ($435,000) to cost of goods sold was different from the actual amount incurred ($425,000).

Ending balances in the relevant accounts were:

Work-in-Process $ 40,000
Finished Goods 80,000
Cost of Goods Sold 680,000

Required:

a. Prepare a journal entry to write off the difference between allocated and actual overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related overhead accounts.

b. Prepare a journal entry that prorates the write-off of the difference between allocated and actual overhead using ending account balances. Be sure your journal entry closes the related overhead accounts.

180)

Jacobs Company manufactures refrigerators. The company uses a budgeted indirect-cost rate for its manufacturing operations and during 20X5 allocated $1,000,000 to work-in-process inventory. Actual overhead incurred was $1,100,000.

Ending balances in the following accounts are:
Work-in-Process $ 100,000
Finished Goods 750,000
Cost of Goods Sold 4,150,000

Required:

a. Prepare a journal entry to write off the difference between allocated and actual overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related overhead accounts.

b. Prepare a journal entry that prorates the write-off of the difference between allocated and actual overhead using ending account balances. Be sure your journal entry closes the related overhead accounts.

181)

The following information was gathered for Rogers Company for the year ended December 31, 20X5.

Budgeted Actual
Direct labor-hours 75,000 dlh 77,500 dlh
Factory overhead $525,000 $558,000

Assume that direct labor-hours are the cost-allocation base.

Required:
a. Compute the budgeted factory overhead rate.
b. Compute the factory overhead applied.
c. Compute the amount of over/underapplied overhead.

182)

Isabelle, Inc., uses a budgeted factory overhead rate to apply overhead to production. The following data are available for the year ended December 31, 20X5.

Budgeted Actual
Factory overhead $675,000 $716,000
Direct labor costs $450,000 $432,000
Direct labor-hours 12,500 dlh 13,325 dlh

Required:
a. Determine the budgeted factory overhead rate based on direct labor-hours.
b. What is the applied overhead based on direct labor-hours?
c. Is overhead overapplied or underapplied? Explain.

183)

Schulz Corporation applies overhead based upon machine-hours. Budgeted factory overhead was $266,400 and budgeted machine-hours were 18,500. Actual factory overhead was $287,920 and actual machine-hours were 19,050. Before disposition of under/overapplied overhead, the cost of goods sold was $560,000 and ending inventories were as follows:

Direct materials $ 60,000
WIP 190,000
Finished goods 250,000
Total $500,000

Required:
a. Determine the budgeted factory overhead rate per machine-hour.
b. Compute the over/underapplied overhead.
c. Prepare the journal entry to dispose of the variance using the write-off to cost of goods sold approach.
d. Prepare the journal entry to dispose of the variance using the proration approach.

184)

A local engineering firm is bidding on a design project for a new client. The total budgeted direct-labor costs for the firm are $800,000. The total budgeted indirect costs are $1,200,000. It is estimated that there are 16,000 billable hours in total.

Required:
a. What is the budgeted direct-labor cost rate?
b. What is the budgeted indirect-cost rate assuming direct-labor cost is the allocation base?
c. What should be the engineering firm bid on the project if the direct labor hours are estimated at 500 hours?

185)

A local attorney employs ten full-time professionals. The budgeted compensation per employee is $80,000. The maximum billable hours for each client are 400. Clients always receive their full amount of time. All professional labor costs are included in a single direct-cost category and are traced to jobs on a per-hour basis. Any other costs are included in a single indirect-cost pool, allocated according to professional labor-hours. Budgeted indirect costs for the year are $400,000 and the firm had 20 clients.

Required:
a. What is the direct-labor-cost rate per hour?
b. What is the indirect-cost rate per hour?

186)

Sedgwick County Hospital uses an indirect job-costing system for all patients. In June, the budgeted nursing care charges for each department and budgeted allocation bases of nursing days are as follows:

June Critical Care Special Care General Care
Budgeted nursing costs $2,480,000 $1,644,000 $1,280,400
Budgeted nursing days 5,000 4,000 8,000

Patient Ms. Graves spent six days in critical care and eight days in special care during June. The remainder of the 30-day month was spent in the general care area.

Required:
a. Determine the budgeted overhead rate for each department.
b. What are the total charges to Ms. Graves if she was in the facility the entire month?

187)

Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.

188)

In a job-costing system, explain why it is necessary to apply indirect costs to production through the use of a manufacturing overhead cost allocation rate.

189)

Explain how a budgeted indirect-cost rate is determined.

190)

What is the difference between an actual cost system and a normal cost system?

191)

Why does the manufacturing overhead control account (debit) need to equal the manufacturing overhead allocated account (credit)?

192)

What are three possible ways to dispose of underallocated or overallocated overhead costs at the end of a fiscal year? Briefly comment on the theoretical correctness or incorrectness of each method.

193)

Hammond and Jarrett provide tax consulting for estates and trusts. Their job-costing system has a single direct-cost category (professional labor) and a single indirect-cost pool (research support). The indirect-cost pool contains all the costs except direct personnel costs. All budgeted indirect costs are allocated to individual jobs using actual professional labor-hours.

Required:
a. Discuss the reasons a consulting firm might use a normal costing system rather than an actual costing system.
b. What might be some reasons for the firm to change from a one-pool to a multiple-pool allocation concept?